French institutional investors are increasingly investing in SRI strategies with 61% of those surveyed saying they did so this year compared with 48% in 2006, according to a report by Novethic, Amadeis and BNP Paribas Asset Management.
Almost half of those investors who had no SRI exposure said they planned to do so in the coming years. 31% of the total institutions surveyed said they had invested more than 5% of their total assets in SRI strategies. The survey questioned 50 French institutional investors including pension and personal protection insurance providers, direct writing mutual societies and insurance companies, foundations and associations, with total assets of more than €700bn. Environmental issues were revealed as the most important concern for French investors. However, the report said that French investors had not kept pace with their counterparts in Europe and the US on questions of shareholder engagement. Only 16% of those with SRI assets thought it was also important to promote shareholder activism.
Hennes & Mauritz (H&M), the clothing retailer, is under pressure from a Danish pension fund to explain allegations that its clothes contain cotton picked using child labour. The $6bn (€4bn) Pædagogernes Pensionskasse (PBU), for Danish education staff, has written to H&M demanding it outline its policy on supply chain and child labour issues. It follows a Swedish television report alleging that clothes sold by H&M contained cotton picked by children in Uzbekistan. The fund said: “PBU has learned through the media that suppliers to Hennes & Mauritz are connected with the use of child labour,” PBU said any use of child labour was in conflict with the UN Global Compact principles on human rights, the environment and corruption, to which it is a signatory. Seperately, a report in Denmark issued by the Pension Market Council, which examines pension investment issues, says schemes can legally take an ethical stance on investments as long as returns do not fall below the market rate for other pension funds, reports IPE.com. The report also said it expected more Danish funds to incorporate environmental, social and governance (ESG) issues into their investments. Data from pensions industry association Forsikring & Pension said 32 Danish funds considered that ESG considerations were already important to them.
The UK National Association of Pension Funds (NAPF) has given a major boost to responsible investment by endorsing the United Nations Principles of Responsible Investment for its members. The NAPF represents over 1300 pension funds running assets of more than £800bn. In its boldest statement on responsible investment to date, the NAPF said it recognised: “the importance of incorporating ESG considerations into investment decisions.” It said that by applying the UN principles its members could work towards improved long-term financial performance, closer alignment between their own objectives as institutional investors and those of society at large and better management of
reputational risk. The support came in the NAPF’s new guidelines for corporate governance, which highlighted contentious corporate governance issues including the length of time companies retain non-executive directors, executive remuneration, auditor liability and environmental and social concerns.
UK public pension funds are being encouraged to engage with companies over merger and acquisition activity by a new trustee guide by the Local Authority Pension Fund Forum (LAPFF). The guide, titled Which Deals Create Value? – Mergers and Acquisitions through the Lens lists 12 questions for trustees to raise to see if a proposed deal raises any concerns. They include asking about acquirer’s track record on deals to date, the size of the target compared to the acquirer, the financing of the deal and remuneration arrangements for directors. Darrell Pulk, chair of the LAPFF, said: “By issuing this trustee guide the Forum aims to at last kick off some real pension fund engagement on M&A, with the objective of ensuring that the deals carried out in the name of shareholder value really do work in the interests of long-term share-owners.” The LAPFF is a voluntary association of 44 public sector pension funds with combined assets of over £85bn.
Watson Wyatt has strengthened its presence in responsible investment by hiring Paul Richards, a former managing director at Goldman Sachs Asset Management. The consultant said Richard’s appointment as a senior investment consultant based in London was part of a global research initiative into sustainability in institutional investment which incorporates the impact on long-term investment of environmental,social and governance (ESG) issues. Richards will work closely with the firm’s Thinking Ahead Group led by Roger Urwin, group chief executive. Richards was formerly head of UK institutional business at ISIS as well as head of manager research at Aon Consulting.
Just one UK local authority pension fund demonstrates best practice towards responsible investment, according to an assessment template produced by the UK Social Investment Forum (UKSIF). The template on long-term responsible investment and ESG issues produced for UKSIF by Mike Taylor, chief executive of the £3.7bn London Pension Fund Authority, shows that only the Environment Agency pension fund demonstrates ‘best practice’ at level 4 compliance with the new initiative, which aims to help trustees through key ESG investment issues It ranks funds as weak (level 1), fair (level 2), good (level 3) and best practice (level 4) if they meet key criteria formulated through discussions with six key pensions “opinion formers”. Of 99 local government pension funds surveyed, 10% ranked at level 3 with remaining funds divided evenly between levels 2 and 1.
A WWF-sponsored report claims 20% of emissions reductions projects through the Kyoto Protocol’s Clean Development Mechanism (CDM) would have occurred anyway and should not have qualified for emissions credits. It said the excess claims for existing clean development projects were equal to 34 million tonnes of carbon dioxide (CO2) equivalent each year. The CDM is one of three mechanisms under the Kyoto Protocol that allows countries and companies to earn emissions credits for projects that reduce emissions in developing
nations. The report was prepared by Oeko Institute for Applied Ecology, the German environmental consultancy and research institute. CDM developers are required to prove their project would not have happened without potential revenues from the sale of emissions credits. WWF saysthat there are “weak standards and inconsistent approaches” towards the CDM mechanism, which could lead to an increase in global emissions, as CDM credits are used to offset rising emissions elsewhere. The CDM market was worth about $5bn in 2006 according to the World Bank
Mercer, the global investment consultant, is to carry out a study of the degree to which emerging market fund managers are integrating sustainability considerations. The study, commissioned by the International Finance Corporation, part of the World Bank, will survey managers operating in emerging markets to identify and highlight those that integrate environmental, social and corporate governance factors in their investment processes. It will also assess the range of sustainable investment-branded funds with emerging market products and their total assets under management.
South Africa’s JSE index has partnered with EIRIS, the UK sustainability research company, to review the criteria and construction of its Socially Responsible Investment (SRI) Index. The JSE said it wanted to ensure the index encouraged “broad based” sustainability practice by companies with consensus on what this means in the context of South Africa. The index assesses the environmental, social and economic sustainability and corporate governance practices of South African listed companies.State Street Global Advisors (SSGA) has launched the Global Environmental Opportunities Strategy (GEOS), a fund aiming to invest in companies that can profit from actions to combat climate change. The fund will be benchmarked against the MSCI World and KLD Global Climate 100 indices and invest across company capitalisations. Bill Page, vice president at State Street Global Advisors and head of environmental, social and governance (ESG) investments, said: “We believe global climate change will have a significant, long-term financial impact on the capital markets, and we expect that new opportunities will arise as a result of companies responding to climate change.”
Nicola Horlick, co-founder of Bramdean Asset Management is reported to be planning the launch of an environmental fund in co-operation with London-based property investor Vincent Tchenguiz, according to Financial News, the UK newspaper.
Tchenguiz already invests in a number of environmental investment projects. Horlick told the newspaper: “Vincent’s organisation has environmental skills we don’t have. There are opportunities in the sector we could exploit through a fund which we could use to invest alongside him.”