RI round-up: May 16

RI’s bite-sized round-up of the week’s major responsible investment news.

SRI assets held by French investors, both retail and institutional, rose by 30% from €17bn to €22.1bn euros in 2007, according to the annual market survey of Novethic, the Paris-based SRI research centre. The survey reveals that 66% of French SRI assets are now owned by institutional investors, a rise of 36% on 2006. Novethic says the use of dedicated institutional socially responsible investment portfolios grew at a faster rate than pooled investment funds, boosted in part by the decision of ERAFP, the French civil servants pension fund, to apply SRI criteria to 100% of its investments in 2007. Notably, SRI assets held by French company employee savings plans also grew by 22% during 2007 and now represent more than 6% of all French employee savings assets. SRI assets of retail investors increased by 19%. The report said six French asset management firms manage more than a billion euros each in SRI assets, mainly in the form of OPCVM mutual funds: Allianz Global Investors France (formerly AGF AM), AXA Investment Managers, BNP Paribas Investment Partners, Crédit Agricole (grouping C.A. Asset Management and I.DE.A.M.), Dexia Asset Management and Natixis Asset Management. To read the full survey (French only):
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Horst Köhler, president of Germany and former head of the International Monetary Fund, has said global financial markets have become “a monster” that must be put back in its place. In an interview with Stern, the German magazine, Köhler said bankers could be compared with alchemists who were responsible for “massive destruction of assets” and singled out excessive banking pay as a factor in the subprime crisis. Köhler said “The complexity of financial products and the possibility to carry out huge leveraged trades with little of their own capital have allowed the monster to grow…also responsible is the grotesquely high compensation of individual finance managers.”Seperately, European Union finance ministers, described excessive executive pay as “scandalous” and said they would be discussing the issue in the coming months. Joaquín Almunia, EU monetary affairs commissioner, said: “When we talk about wage moderation and the need to link wage increases with productivity increases, then we also have to say something about levels of remuneration that sometimes don’t seem to reflect productivity.”
Governance in most listed companies in Japan is failing to meet the needs of shareholders, according to a white paper published by the Asian Corporate Governance Association (ACGA), and supported by a group of leading pension funds and asset managers with significant assets invested in the country. The paper says that despite improvements among some leading Japanese companies, others do not supervise corporate strategy effectively, protect management from the discipline of the market and failing to provide the returns necessary to protect Japan’s pension system. The paper makes recommendations in six areas: recognition of shareholders as owners of listed companies, efficient use of capital, independent supervision of management, pre-emption rights and third-party share placements, poison pill takeover defences and fairness and transparency in shareholder voting. Anna Krutikov, associate director, governance & sustainable Investment at F&C, said: “We believe these are the most pressing issues which relate to corporate governance in Japan today because they have an impact on the companies we invest in. It is still common for listed companies in Japan to be run as if management, and not shareholders, were the owners and changes are needed.” The white paper was endorsed by Aberdeen Asset Management, British Columbia Investment Management, CalPERS, Hermes Fund Managers, RAILPEN Investments, and the Universities Superannuation Scheme.

Catherine Howarth, is to become the chief executive of FairPensions, the UK campaign for responsible investment. She takes up the role on 28th July. Howarth, currently director of West London Citizens, is a pension fund trustee and a former senior researcher at the New Policy Institute. She replaces Alex van der Velden who joined Dutch pension fund, PGGM, as head of sustainable investment strategies.
Emerging markets fund managers are to be rated based on the incorporation of environmental, social and governance factors (ESG) into their investment decisions as part of a new research initiative commissioned by the International Finance Corporation (IFC), the private sector branch of the World Bank Group. The IFC has appointed Mercer, the investment consultant to conduct a study of 50 managers based in the emerging markets of China, India, South Korea and Brazil and a survey of over 200 managers globally who invest in emerging markets. Tim Gardener, global business leader of Mercer’s investment consulting business said: “As demand for investment in emerging markets has grown, so too has the need for a better understanding of the environmental, social and governance forces at play in these markets and their impact on performance,” he said. The study’s findings will be made public later this year.
University College London has become the latest in a string of UK education institutions to consider switching investments into ethical trusts following student protests, reports the Times Higher Educations Supplement. It reported UCL’s provost, Malcolm Grant, saying the university was “taking on board student concerns”. The paper reported that in 2007, the University of St Andrews had introduced a similar policy, while Cambridge universities, New Hall and St Catharine’s College, both sold investments in companies that do business with the Sudanese Government, and Pembroke College sold arms company stocks after student pressure. A 2006 report from Campaign Against Arms Trade showed that UCL had £1.5m in arms shares at the time.Less than a third of fund managers running over $12 trillion in assets – including over half of the world’s leading 20 houses – provide structured training for their portfolio managers and key investment staff on environmental, social and governance issues (ESG), according to a report by RImetrics, a UK-based company which measures asset management implementation of SRI issues.
The survey, which examined 28 fund managers, said many were not integrating ESG knowledge and research into their investment process, despite improvements in their understanding of the issues. More than 100 fund managers have signed up to the UN Principles for Responsible Investment, which encourage managers to carry out such integration. RImetrics said fund managers also rarely consulted with their clients on the development of responsible investment strategies. Bill McClory, a trustee of the BT Pension Fund said, “This report provides a valuable insight into managers’ RI practices and behaviours which should stimulate trustees to ask questions of their current managers and to seek out those managers with better than average practices. This is a wakeup call to those managers who do not demonstrate good practice.”
European listed property companies could significantly improve corporate governance practices, according to a study released by EPRA – The European Public Real Estate Association. The report said a key determinant of corporate governance quality was the link between managerial compensation and performance and/or stock value. Erasmo Giambola, Assistant Professor in the Finance Group of the University of Amsterdam and the author of the EPRA report said: “This is one factor where we have really consistent evidence that if you don’t link compensation and performance, then you produce poor results for shareholders. It is strikingly clear in one European market where this link is poor to non-existent and company performance is also weak.”

The survey said the UK, the Netherlands and Switzerland lead the list of countries surveyed, while France, Belgium, Italy, Austria, Germany and Greece fell below the study average.
Many food and drinks processing companies are failing to operating sustainably in terms of water consumption, according to a report by the Ecumenical Council for Corporate Responsibility (ECCR), a group of faith-based investors. ECCR analysed water use policies and performance of fifteen leading British and Irish food and drinks businesses, including their agricultural supply chains and overseas operations. The report, Water Sustainability: Meeting the Challenge, said Diageo, SAB Miller and Unilever showed greatest evidence of addressing the need to monitor, report on and reduce their water footprint. Other companies, it said had been slow to respond in a sector which is among the heaviest industrial water users. , Electronic copies are available by email from miles.litvinoff@eccr.org.uk.
The Enhanced Analytics Inititiative, whose 30 members managing nearly $3.3 trillion (€2.1 trillion) in assets commit to allocating a percentage of their brokerage commissions to pay for research on extra-financial issues, has won the Joan Bavaria Award for Impact inbuilding sustainability into the capital markets. The Joan Bavaria Award, named after the founder and CEO of Trillium Asset Management in the US, recognises investors, companies, and nonprofit groups for specific achievements in spurring the capital markets to move from short-term profits to integrating longer-term social and environmental factors into investment decision-making. The impact award recognizes achievements that have already creating lasting change in capital markets. Washington-based Bainbridge Institute’s MBA in Sustainable Business won the Joan Bavaria innovation award for achievements that have the potential to create lasting change. Nominations for the 2009 Bavaria Awards are now being accepted via the Ceres website (www.ceres.org/bavaria_awards).
The Global Reporting Initiative (GRI) has started working with leading socially responsible investment research companies to enable corporations to provide their sustainability information electronically. To date, company social responsibility reports have largely been published in print. The GRI said companies would be able to put CSR information into a widely accepted digital format giving readers more flexible access.