RI ESG Briefing, September 7: BlackRock urges investors to integrate climate considerations into investment analysis

Environmental

BlackRock has called on investors to incorporate climate awareness into investment analysis in a new report, Adapting Portfolios to Climate Change. The document profiles climate-related risks in four areas: technological advances in power production, undermining existing business models; regulatory efforts to curb carbon emissions; increasingly frequent extreme weather events; and social pressures for greater climate awareness. It also highlights ways to develop opportunities to generate climate-related ‘alpha’, such as ‘climate-scoring’ companies.

Real estate companies and funds are improving their ESG performance around the world, according to an annual assessment of the industry by GRESB (formerly the Global Real Estate Sustainability Benchmark). Companies in the sector, representing $2.8trn of assets, significantly outperform their peers, the survey concludes. On average, such corporates and institutions are using 1.2% less energy, have reduced greenhouse gas emissions by 2% and have cut water use by just under 1%. GRESB’s assessment of real estate debt has also revealed that real estate investment trusts (REITS) are issuing increasingly more green bonds due to growing investor demand.

Social

UK-based social investor Big Society Capital is reportedly working with the Joseph Rowntree Foundation to work towards raising up to £20m of social investment to tackle the ‘poverty premium’. Public Finance reports that Big Society Capital chief executive Cliff Prior said it was unacceptable that thousands of people living in poverty can pay up to £1,000 extra each year for even the most vital services such as gas, electricity and loans.

The China Development Research Foundation has reportedly urged China to set up social impact investment funds and create laws and regulations to catalyse activity. Lu Mai, secretary-general of the China Development Research Foundation, said social impact investment could play an important role in China’s transformation.h6. Governance

The Institute of Director’s (IoD) ranking of FTSE100 companies by their corporate governance has identified supermarket operator Tesco, advertising firm WPP and upmarket housebuilder Berkeley Group as the worst performers in the UK. Tesco’s bottom spot was largely down to poor accounting and audit practices, a reflection of accounting scandals and profit warnings over the past two years, while WPP’s CEO Martin Sorrell and his £70m pay packet prompted widespread opposition from shareholders earlier this year. The IoD’s Head of Corporate Governance Policy, Oliver Parry, warned companies that they have to improve, or would face tighter regulation.

The UK’s Prime Minister Teresa May has confirmed that proposals to tackle bad corporate behaviour, such as those combating excessive executive pay and tax avoidance, will be in place before the end of the year. She also revealed that a nationwide consultation on corporate governance will be launched this autumn and that a “new forum” to look at market distortion issues would be in place shortly, too.

Norway’s Oslo Børs has published guidance corporate responsibility reporting. The guidance was developed in collaboration with the Norwegian Forum for Responsible and Sustainable Investment (Norsif). Bente Landsnes, President and CEO of Oslo Børs, said: “Investors are attaching more and more weight to corporate responsibility in their investment decisions, and we want to help increase transparency and improve reporting by companies. This guidance is intended to be a practical tool that companies can adapt to the nature of their business and their size.”

The PRI has published a report that examines investor obligations and duties in Singapore, South Korea, India, China, Hong Kong and Malaysia to clarify investors’ obligations and duties surrounding ESG integration, both in investment practice and decision making. The document outlines five major barriers to a cohesive approach to responsible investment in Asia’s disparate markets, including a perception that considering ESG factors will compromise investment performance and the difficulties of different corporate structures when, for example, many companies are family-run. Fiona Reynolds, the PRI’s managing director, said that despite responsible investment remaining a “nascent concept” in the region, momentum is growing.