RI round up: Oct 1

RI’s round-up of the week’s most important responsible investment news.

The $14.1bn New Zealand Superannuation Fund says it is close to a decision on whether to pull investment from companies involved in the manufacture of nuclear weapons. The fund said it did not currently invest in any companies that make nuclear explosive devices.
Adrian Orr, chief executive officer of the guardians of the fund, said: “We are near completion on our decision regarding investment in companies involved in nuclear weapons manufacture. This has proved to be a complex issue. Many companies are associated quite legally in many different ways, and there are quite complex international obligations and Crown actions.
IN a report on its progress as a responsible investor, the fund reiterated its belief that good environmental, social, and governance practices can positively influence the long-term performance of entities it invests in
The fund also said that its corporate engagement programme had developed strongly, notably via the UNPRI Clearing House: “Engaging with companies on problem issues, in concert with other signatories through the UNPRI Clearinghouse, is our most effective means of promoting responsible behaviour. This year alone we have been collectively involved in investor efforts to improve labour conditions and human rights in some problem areas, as well as promote carbon emissions disclosure amongst companies internationally.”

Danske Bank, Denmark’s largest banking group, has initiated a new series of responsible investment measures including a blacklist of 13 companies it won’tinvest in, as well as stronger commitments to SRI fund allocations and active ownership-engagement. The bank has already sold shares worth €23m in the 13 companies, which include Lockheed Martin, General Dynamics Corporation and Nissan, the Japanese car manufacturer. Another 17 companies have been placed on an observation list. Henrik Ramlau-Hansen, CEO for Danica Pension, the pensions arm of Danske Bank, said: “We strongly believe in the business potential of investing in well-behaved companies.” The new policy will cover more than €50bn in assets. Dankse Bank has faced strong public criticism recently following media attention on its pension fund investments. In autumn 2007, DanWatch, a corporate watchdog on Danish investment and trade abroad, highlighted investments in cluster bomb manufacturers and oil and gas sector companies operating in Burma. DanWatch said the amount divested by Danske Bank could be described as “symbolic”, but said it hoped the measures would inspire other major financial institutions to implement similar policies. Link to DanWatch
New Orleans Employees’ Retirement System has reportedly filed a lawsuit against executives and directors of AIG, the US insurer, which was recently bailed out by and $85bn loan for a 79.9% equity stake by the US government. Pensions & Investments, the US newspaper, reports that the suit has been filed in Delaware Chancery Court in Wilmington and claims that AIG’s senior management and directors did not properly monitor the risk of losses in the sub prime markets.

The £3bn Lothian Pension Fund has confirmed it will continue with a class action case against the officers and directors of Lehman Brothers over the investment bank’s collapse.
The UNPRI has launched the first global network of academics dedicated to advancing responsible investment. The PRI Academic Network aims to narrow the divide between academic research around environmental, social and governance issues within investment, and the growing practice of responsible investment within hundreds of financial institutions across the world. The network was launched at a joint conference with the European Centre for Corporate Engagement (ECCE) at Maastricht University, Netherlands. James Gifford, Executive Director of the PRI said: “One of the goals of this network is to provide academics and practitioners with a platform to collaborate more closely around areas such as the impacts of ESG integration, effectiveness of shareholder engagement and the role of investors in addressing ESG issues that may be inhibiting economic growth. We will also be working to encourage responsible investment courses within business schools.”
Kent County Council in the UK has agreed to sign up to the UNPRI after coming under fire last year when the council was accused of investing millions into the tobacco, oil and arms industries, reports the Kent News. The decision followed an 18-month campaign by the Kent Green Party and other pressure groups including Unison and the Campaign Against Arms Trade. The £2.6bn Kent Pension Fund invests the assets of 40,000 public sector workers in the county.SEC chairman Christopher Cox has closed a legal loophole where global investment banks were not directly supervised by regulators, but submitted voluntarily to regulation. Cox said: “The last six months have made it abundantly clear that voluntary regulation does not work. When Congress passed the Gramm-Leach-Bliley Act, it created a significant regulatory gap by failing to give to the SEC or any agency the authority to regulate large investment bank holding companies, like Goldman Sachs, Morgan Stanley, Merrill Lynch, Lehman Brothers, and Bear Stearns. Because of the lack of explicit statutory authority for the Commission to require these investment bank holding companies to report their capital, maintain liquidity, or submit to leverage requirements, the Commission in 2004 created a voluntary program, the Consolidated Supervised Entities program, in an effort to fill this regulatory gap. As I have reported to the Congress multiple times in recent months, the CSE program was fundamentally flawed from the beginning, because investment banks could opt in or out of supervision voluntarily.” Cox said “a massive hole” still remained in US regulation concerning the approximately $60 trillion credit default swap (CDS) market, which is regulated by no agency of government: “Neither the SEC nor any regulator has authority even to require minimum disclosure. I urge Congress to take swift action to address this.”
Industrialized countries last week pledged more than $6.1bn to international investment funds aimed at helping developing countries adopt cleaner technologies and mitigate growth in greenhouse gas emissions, according to the World Bank. The first projects to
benefit from two Climate Investment Funds administered by the World Bank and multilateral development banks are expected to be announced in early 2009, the World Bank said.
Hermes, the UK pension fund manager owned by the BT Pension Scheme, has reportedly said it is not interested in teaming up with other organisations, after joint venture talks with London-based Governance for Owners (GO) fell through. Hermes did not comment directly on the discussions with GO, a partnership founded by former Hermes directors Peter Butler and Steve Brown who previously ran the shareholder engagement funds at Hermes.
Mainstream investors are beginning to assess labour and human rights factors as a way of increasing returns and lowering risk, according to a study by Harvard Law School’s Labor and Worklife Program (LWP).
The paper says an investment analysis of labour and human rights poses some of the most difficult challenges in the emerging ESG field, notably because of a lack of objective, quantitative data about corporate activities in these areas. One of the paper’s conclusions is that asset owners and managers can obtain useful data from the global supply-chain factory monitoring regimes designed to verify the labour codes of conduct issued by many multinationals. It says investors could also adopt the shareholder engagement practices institutions frequently use to address environmental and governance risks. The study was written by Aaron Bernstein, a Wertheim fellow and senior research associate at Harvard. The research, titled: “Incorporating Human and Labor Rights Risk into Investment Decisions” can be accessed at: Link to Harvard report*DWS, the mutual fund arm of Deutsche Asset Management*, has teamed up with Aquila Capital, the German alternatives asset manager, to launch the DWS CO2 Opportunities Fund. The fund, which will be advised by First Climate, the carbon investment company, will invest in CO2 and CO2-derived investment products.
John Ruggie, the UN Special Representative for business and human rights, is convening a group of world leaders from business, diplomacy and civil society group to advise him on ensuring that businesses worldwide respect internationally recognised human rights standards. The panel includes former UN Secretary-General, Kofi Annan, as well as Mary Robinson, the former President of Ireland who also served as UN High Commissioner for Human Rights.
The World Economic Forum has combined with Mercer to publish a report titled: “The future of pensions and healthcare in a rapidly ageing world: scenarios to 2030”. The report looks at various scenarios based on the falling ratio of elderly persons to the working age population in the coming years in many parts of the world. Link to report
Innovest has launched a joint report with the World Wide Fund for Nature (WWF) that discusses the role of sovereign wealth funds in contributing to a low carbon future. The report uses the Norwegian Global Pension Fund as a case study and ranks key public investment funds in terms of applying sustainable investment, particularly with regards to addressing climate change. It says public pension funds such as ABP Netherlands and CalPERS are leading the way, with sovereign wealth funds such as Norway’s Global Pension Fund lagging behind.

Airlines in Europe will have to pay €3bn per annum for their carbon emissions under a new EU emissions trading scheme expected to be approved later this year, beginning in 2012. The levy will lead to a drive for greater efficiency in the face of rising costs, according to a Merrill Lynch report. The EU proposal, expected to get the green light this autumn, would force airlines flying in and out of the EU’s 27 member states to pay for their CO2 emissions from 2015. Zoe Knight, Merrill Lynch’s socially responsible investing analyst, said the EU move was expected to drive demand for more fuel-efficient aircraft, increase the focus on the most profitable routes and encourage carriers to increase the number of seats.Airlines are also likely to hedge their carbon emissions, she said.
Giant oil and mining firms could be forced to reveal the precise amounts of tax they pay in each country in which they operate, reports The Observer newspaper. The move has been heralded as a major breakthrough that could end a widespread culture of corporate secrecy and alleged corruption. The measure is being seriously considered by the International Accounting Standards Board after a high-level meeting of investors, including George Soros, and campaigners, argued for the introduction of so-called ‘country-by-country reporting’ in front of representatives from Rio Tinto, Shell, Anglo American and BP.