RI global round-up 15/01/08

RI’s bite-sized round-up of the week’s main responsible investment stories.

Mercer, the investment consultant, has thrown significant weight behind responsible investment (RI) with a raft of new hires to its dedicated team. In December, Responsible Investor revealed the consultant was set to boost its specialist global responsible investment team. Mercer launched the specialist business unit in 2004. Its staff is mostly spread between New York, Toronto, London, Tokyo and Melbourne. Under the recruitment drive, Jordan Berger, former supervisor of strategic planning, policy development and benefits at the Ontario Public Service Employees Union, has been named head of responsible investment for Canada; a new position. In Australia, Xinting Jia, a former management consultant who co-founded the Centre for International Corporate Governance Research/Business and Law at Victoria University, has joined Mercer’s Asia Pacific responsible investment team as an Associate, based in Melbourne. In Tokyo, Megumi Terayama joins as a senior consultant. Megumi worked in the corporate risk management consultancy services at KPMG Business Assurance. The Responsible Investment team has also hired Kelly Gauthier, a former management consultant who previously worked for CARE Enterprise Partners in social venture capital, as an associate in Toronto. In London, it has hired Susanna Jacobson as a sustainable research analyst. Jacobson previously worked with Innovest and SustainAbility. In Stockholm, Eric Gelfgren, former global head of marketing & sales at Sustainable Asset Management (SAM), joins Mercer as a principal inthe RI team. Jane Ambachtsheer, global head of responsible investment at Mercer: “This growth reflects the extent to which responsible investment is evolving – from a niche area to one of our core lines of business. This is due to an increasing number of institutional investors around the world seeking advice on how to better incorporate environmental, social and governance factors into their investment processes.”
Pirc, the UK corporate governance group, has hit out at the 2007 pay of directors at Aberdeen Asset Management, including chief executive Martin Gilbert, who was paid a bonus of 656% of salary last year. Pirc has recommended that shareholders vote against the remuneration report at Aberdeen’s annual general meeting on January 17th.
Aberdeen’s annual report shows that Gilbert was paid £400,000 in 2007 while his bonus stood at £2.625m.
Pirc said: “Combined incentive awards granted during the year were excessive in our view. We would welcome further disclosure on relative ranking for earnings per share performance targets under the long-term incentive scheme. We recommend that shareholders vote against the remuneration report.”
The Aberdeen annual report states that Gilbert’s bonus was paid in line with set targets including managing costs, improving profit and operating margins, and retaining important clients and staff.
Railpen Investments, one of the UK’s largest pension fund investors, has increased corporate governance

pressure on Japanese companies by writing to nearly 200 to outline its stance on issues such as board diversity, independence of non-executive directors and poison-pill defences. Japanese companies are regularly criticised by foreign investors over corporate governance standards.
In November, 2007, the £20bn (€27bn) pension fund manager, which looks after the assets of the £17.8bn Railways Pension Scheme and several smaller pension funds, re-appointed Governance for Owners, the engagement specialist, to oversee governance in its £690m Japanese equity portfolio.
The European Commission has given a significant boost to investment in green industries by naming sustainable construction, recycling, bio-based products and renewable energies, as four of six new sectors to benefit from its new Lead Market Initiative (LMI). The commission said the initiative would aim to remove planning and certification barriers hampering the development of the renewable energy market, promote next-generation recycling processes and cut administrative burdens for sustainable construction firms. The commission claimed the measures would help to more than double the size of the six selected industries – the other two sectors being e-health and protective textiles – estimating that they could generate more than €300bn and more than three million jobs for the EU by 2020.
The EC could also radically toughen up its emissions trading scheme (ETS), according to a draft proposal seen by research firm Point Carbon. According to the group, a leaked draft of proposals scheduled for releasenext week when the Commission publishes its climate change plans for the period from 2013 to 2020, proposes a major tightening of emission caps for companies. It also proposes a huge increase in the number of auctioned carbon credits with the goal of reducing the emissions cap by 21 per cent on 2005 levels by 2020. It said the report also suggests ending the free allocation of carbon allowances to power companies from 2013 and increasing the proportion of auctioned allowances in order to end all free allocations by 2020. The EC plans to published finalised draft proposals on a series of energy and climate-related policies on January 23.
UBS has launched the Greenhouse Index, a tradable investment benchmark mixing weather and emissions asset classes with the aim of giving investors exposure to greenhouse gas emissions and their impact on the weather. Weather exposure is derived from Heating Degree Day (HDD] and Cooling Degree Day (CDD) futures contracts traded on the Chicago Mercantile Exchange (CME). Emissions exposure is provided by carbon credits associated with the EU Emission Trading Scheme traded on the European Climate Exchange (ECX) and the Kyoto Clean Development Mechanism traded on Nord Pool. 
The index governance committee will meet annually to determine its composition and weighting. Ilija Murisic, executive director, hybrid derivatives trading at UBS, said: “Companies that have exposure to emission markets are also potentially exposed to significant weather risk. Despite the explosive growth of their market, weather derivatives and carbon emission futures remain predominantly a hedging instrument for
professionals and, because of the complexities of the weather markets and regulation intricacies of the Kyoto Protocol, are largely inaccessible to the broad investor community.”
La Fayette Investment Management, the $6bn (€4bn) UK fund of hedge funds manager, has reportedly launched a fund to invest exclusively in activist managers. Kevin Dolan, the firm’s chief executive and former CEO of Bank of Ireland Asset Management, told Financial News: “There is a tremendous opportunity for these active value managers to identify opportunities and help public companies’ management teams unlock shareholder value.” Lafayette will allocate the fund to seven activist managers in the US and Europe and plans to allocate to up to five more.
Investment in clean energy reached $117bn in 2007, a rise of 35% on 2006’s $86.5bn, according to New Energy Finance (NEF), the renewable energy research company. NEF said the strong growth was attributable to continuing “non-financial drivers” such as regulation and political concerns over energy security. It also recorded a shift in focus from more mature wind and biofuels markets in Western Europe and the US towards Asia, Brazil and other developing countries.
The Chicago Climate Exchange (CCX) said that almost 23m tonnes of carbon dioxide was traded on it in 2007 more than double the level in 2006.
General Electric has announced plans to double its investments in renewable energies to $6bn by 2010 in a sign that big companies are capitalising on concerns over global warming and pollution. GE said that within two years alternative sources such as wind and solarpower would account for almost a quarter of its total investments in energy and water, up from 10 per cent in 2006.
Investment analysts at Citi have identified 24 companies that could benefit from climate change effects on water supplies and waste treatment. The report, titled Water Worries, said European companies including Danone and Nestlé were well positioned as leaders in bottled water to benefit from water scarcity. It said that France’s Veolia Environnment and Doosan in South Korea would also likely profit from the increased desalination of sea water needed to deliver fresh water.
Edward Kerschner and Michael Geraghty, analysts at Citi, said: “Floods, droughts, and changing snow cover have long been newsworthy events.
What’s significant now is that climate change is having a significant impact on those variables. In many regions of the world where the supply of water is increasingly an issue because of climate change factors, there is also a growing demand for water.”
Four of the world’s largest investment banks will stand trial in Italy in a case starting on January 22 over alleged stock market manipulation during the collapse of Parmalat, the Italian dairy company, in 2003.
The court alleges that Citigroup, Morgan Stanley, UBS and Deutsche Bank knew Parmalat was bankrupt but continued to offer bond issues to investors. The banks deny the charges.
JP Morgan, Bank of America, Banco Santander and ABN Amro, which also provided financial services to Parmalat at the time of its bankruptcy, have not been charged.
The heads of tax authorities from 40 countries met
last week in Cape Town to discuss ways to plug tax loopholes and inequities created by increasingly complex global financial flows. The International Forum on Tax Administration is a body created by the OECD to improve the working relationship between tax administrations in different countries. At the meeting, South African finance minister, Trevor Manuel, called for greater international co-operation among tax authorities. He said globalisation meant shifts in tax policy by individual countries could have negative effects on others such as the cutting of corporate tax rates
as countries compete for investment. One issue discussed at the conference was how to ensure multinational companies do not avoid paying tax, particularly in emerging markets, through the use of offshore tax havens.The Alaska Department of Revenue has reportedly reached a $6.3m settlement with State Street Global Advisors over losses in SSGA’s government corporate bond fund. Brian Andrews, the department’s deputy commissioner, told Pensions & Investments that the settlement had been made in a combination of cash and fee rebates. $3.3m. He said the fund’s performance had suffered because of investments related to the sub-prime mortgage fallout. State Street recently said it had set aside a reserve fund worth $618m on a pre-tax basis “to address legal exposure and other costs associated with the underperformance of certain active fixed-income strategies”.