RI round-up October 5

Danica Pension, the DKK250bn (€33.59bn) pensions arm of Denmark’s Danske Bank, has banned Daewoo International Corp. and Hyundai Motor Co. from its investment universe over ethical concerns. Also excluded is Romanian munitions maker Aeroteh. The move takes Danica’s blacklist to 16. Of these, four are Korean and three are Chinese. There are five US firms on the list, one Japanese and one from Singapore. Two are Romanian. Danica said Daewoo was in breach of international guidelines in connection with its activities in Burma while Hyundai was involved in “corruption and bribery”. Danica said the aim of its ethical investment policy was to avoid the pension assets of scheme members being placed in businesses which knowingly breached international norms in the fields of human rights, environment, labour, corruption and weapons.
The Carbon Disclosure Project (CDP) – the not-for-profit corporate climate change database – is to upgrade its disclosure system. The data is collected for use by institutional investors, businesses and regulators. From next year, firms will report to CDP through the new data system – meeting a demand from investors for more detailed, consistent, comparable and actionable data. CDP added: “It will streamline reporting for companies by providing enhanced tools and guidance through a single, fully accessible reporting platform.” Paul Dickinson, CDP’s chief executive, said: “With our new improved data tools and capabilities we are providing a world class reporting platform that will assist in the sharing of high quality climate change data on an international scale andeventually integrate with existing national regulatory systems. This global hub of information will be essential to supporting a global deal post Kyoto.” Meanwhile, the CDP said Asian companies have “responded strongly” to the project this year, according to its Asia ex-Japan report for 2009. It said the number of reporting companies had more than doubled to 127, up from 61 last year and that “the quality and materiality of responses has continued to improve”.
The Luxembourg Government has included an exemption from subscription tax for microfinance investment funds in its proposal for the state budget 2010, scheduled to be adopted by the Luxembourg Parliament in December. It follows a recommendation by the Association of the Luxembourg Fund Industry (ALFI), whose chairman, Claude
Kremer, said: “These funds accomplish an important social and philanthropic role that complements public action and cooperation efforts. Clients investing in these funds will react favorably to this decision.”
Newsweek magazine has partnered with KLD Research & Analytics, Trucost and Corporate Register to create the first annual Newsweek Green Ranking of 500 of the largest publicly traded companies in the U.S. The rankings can be viewed at: Link
Ludgate Environmental Fund (LEF), the green fund launched in 2007 with money from pension fund investors, posted a net loss of almost £3m (€3.3m) in the year to June 30, 2009, due to depressed investments in the market downturn. Ludgate’s clients include
Flintshire County Council, administrator of the Clywd Pension Fund in the UK, with an 8% stake in the fund. Shares in the Ludgate fund, which is quoted on AIM and focuses exclusively on the environmental/cleantech sector, closed at 92p on June 30, a drop of 19.7% over the year. Despite the losses, total return to shareholders for the year exceeded the FTSE AIM All-share index by 23%. LEF continued to grow in size over the year, achieving a £15m increase in net asset value to reach £50.4m. The directors recommended a dividend of 1.5p per share. The fund said it would modify its investment policies to become more active and engage more closely with investee firms to boost returns.
Financial institutions in emerging markets “have a long way to go” in terms of climate change governance, according to a new report for DEG, the German development finance institution. Despite increased awareness of climate change issues and the growing investment opportunities associated with renewable energy, energy efficiency and climate adaptation projects, the 43-page study found that banks in Asian, Latin American and other emerging markets were lagging their peers in the developed markets. The report said, “it is clear that [financial institutions] in emerging markets have a long way to go in implementing strong climate change governance practices”. The study was the first systemic investigation of how emerging market banks are addressing climate risk with DEG seeking to set a baseline for responses. Sixty-four banks in Eastern Europe, Central Asia, Africa, Latin America and South Asia were polled.Environmental, social and governance (ESG) issues are increasingly considered part of pension fund fiduciary duty, according to a survey of pension funds. Almost three quarters (70% approximately) of 42 fund respondents to a poll by IPE.com said it was part of a trustees’ fiduciary duty to include ESG in their decision-making process and during manager selection processes. Only a quarter disagreed. But more than 51% of respondents were unsure as to whether ESG investments would help generate a higher return. While 39% thought that the integration of ESG factors into pension fund investing would benefit from the financial crisis, 31% disagreed. However, 67.5% of the respondents said they had not been paying any more attention to ESG since the start of the financial crisis. Less than a quarter of respondents said they applied ESG criteria to their entire portfolio. Around 27% said they had no ESG strategy, while the majority – around 48.5% – applied an ESG strategy to between 2% and 95% of their portfolio.
More shareholders are voting against director nominees, according to data from US advisory firm Proxy Governance, which found “a significant increase” in the number of opposition votes to director nominations in the first eight months of 2009. Proxy Governance said: “Although the vast majority of director nominees continue to be elected with little opposition, for companies with director votes available through August 2009, 9.8% of unopposed director nominees had at least 20% of shares voted against them or withheld, up from 5.5% in 2008.” Senior managing director Scott Fenn, said: “While declines in stock prices and the

financial crisis no doubt played a role in the apparent increase in shareholder discontent with directors during 2009, compensation and corporate governance concerns also appear to have been primary drivers behind the increasing number of shares voted in opposition in director elections.” The firm added that the level of opposition to director candidates was likely to increase next year as regulatory changes such as the disallowing of discretionary voting by brokers are introduced.
Owners Research Group (ORG) has set up a research platform which aggregates and anonymously presents a composite picture of shareholder opinion directly to boards. It has started to cover six banks which received bailout funds from the US government’s TARP scheme. ORG said: “The response from the institutional community has been extremely positive, with many of the largest and most highly-regarded asset managers contributing their opinions online.” Link to ORG
The UK Serious Fraud Office has announced that it is prosecuting BAE, the UK’s biggest arms company, over bribery allegations after the company failed to meet a deadline to settle the case. BAE is accused of paying out millions of pounds to win lucrative arms contracts in countries including the Czech Republic and Tanzania.
The Carbon Disclosure Project (CDP) has reported its highest ever response rate to its annual requests for information on greenhouse gas (GHG) emissions by corporations in its 2009 report. Of the 500 largest corporations in the FTSE Global Equity Index Series, 409, or 82%, provided responses, up from 383 in 2008. Notably, it said responses from corporations headquartered in the BRIC countries (Brazil,Russia, India, and China) had doubled since 2008 to 44%, including a 100% response rate from Brazil, and responses from Asian corporations increased by 39%, from 51 to 71. The report found that the standard of disclosure was highest in the carbon-intensive utilities sector, followed by health care and materials. The companies that scored highest in the CDP 2009 report were Bayer, BASF, HSBC Holdings, Wal-Mart, and Chevron.
BlueOrchard has been chosen to oversee a $250m investment into Latin America and Caribbean microfinance institutions (MFIs). The investment is being made by organizations including the Inter-American Development Bank’s Multilateral Investment Fund and the U.S. Government’s Overseas Private Investment Corporation (OPIC). The investment, known as a microfinance growth facility (MIGROF), will support the growth of MFIs that require refinancing in order to serve sections of the populations who have no access to mainstream financial services.
The EU has reportedly announced an overhaul of its value-added sales tax (VAT) system to try and stamp out so-called carousel fraud in its carbon emissions trading system, which is estimated to run into millions of euros. The Guardian newspaper reports that Brussels will harmonise policy between EU states and introduce a reverse charge mechanism, removing the need for VAT to change hands between carbon traders every time carbon credits are sold. Carousel fraud occurs when a buyer of credits in a non VAT free country then sells them on in VAT country, charging VAT to the buyer, but then disappearing without handing the VAT over to the tax authority.

French SRI research group Novethic has published a list of 92 funds given the mark of Novethic SRI compliant, meaning they have a transparent implementation process for integrating environmental, social and governance factors into their investment. Novethic said it had received 121 candidate funds and that of the 92 that made the grade, 60 are equity funds, 22 bond funds, 5 cash funds et 5 balanced funds.
Link to Novethic
Follow up research from the Association of Chartered Certified Accountants (ACCA) has highlights a number of potential obstacles and responses to pension fund trustees integrating climate change considerations into their decisions. The initial report, Pension Fund Trustees and Climate Change, by Professor Jill Solomon of Kings College University of London, can be downloaded from: Link to report
The follow up report, Pension fund trustees and climate change: One Year On, can be found at: Link
The Norwegian Government Pension Fund has reinstated Thales, the French electronics group and DRD Gold, the South African mining company, to its investment universe after the companies ceased the activities that formed the basis for their exclusion. Thales has ended involvement in the manufacture of cluster munitions. DRD Gold has ended its involvement in gold mining in Papua New Guinea, where tailings from the mine were deposited into a natural river system.
Switzerland’s Ethos SRI foundation together with eight pension funds is to petition for say-on-pay votes at the 2010 AGMs of four large Swiss listed companies: Holcim, the building materials group, Swiss Re, ZurichFinancial Services and Novartis, where they will also file a proposal to split the chairman and CEO roles. Last year, Ethos succeeded in forcing pay and remuneration policy changes at UBS, Credit Suisse, Nestlé and ABB, in a similar campaign.
A Canadian Member of Parliament, Robert Oliphant, is reportedly set to introduce a Private Members’ Bill into the House of Commons, calling for amendments to the Pensions Benefits Standards Act, 1985, which would requiring public and private pension plans to disclose considerations given to environmental, social or governance factors in investment.
Peter Chapman, executive director of Canada’s Shareholder Association for Research and Education (SHARE), said: “Passage of this bill will bring Canada into step with many other industrialized countries where disclosure of environmental, social and governance considerations is mandated for some or all pension plans.”
A new draft of ISO 26000 standard has been issued, which provides corporate guidance on social responsibility, including: governance, environment, human rights, labour practices, fair operating practices, consumer issues, community involvement and societal development. Link to draft
The US should introduce a shareholder advisory vote on executive compensation because experience in the UK has demonstrated it to be an effective tool for investor engagement, according to a study published by PIRC, the UK corporate governance group and Railpen, the pension scheme for UK railways. The report, Say on Pay: Six Years On, says say-on-pay votes in the UK have
encouraged greater investor engagement and led to increased and better quality dialogue with companies over remuneration policy.
A report by the European Academy of Business in Society proposes that companies and investors should focus on a limited number core non-financial elements in order to make ESG performance attributes easier to isolate and identify. The research team was led by the Doughty Centre for Corporate Responsibility at Cranfield School of Management and brought together academics from SDA Bocconi School of Management in Milan and Vlerick Leuven Gent Management School in Belgium. The report – “Sustainable Value” – looks at how ESG performance impacts business success, how companies explain these linkages to investors, and how the investment community treats the data: Link to report
Pension funds that have invested or are about to invest in microfinance expect to maintain or increase current investment levels over the next three years according to the findings of a survey commissioned and published by the World Microfinance Forum Geneva (WMFG). Those that plan to increase typically foresee doubling their involvement, the research finds. The study, carried out by onValues, the Swis research house, covers nineteen pension funds: nine from Switzerland and ten from six other European countries (Austria, Denmark, France, Germany, the Netherlands and Sweden), with total assets of approximately €350bn. It includes funds that have already invested in microfinance and funds that have not. Total microfinance investments of the interviewed group are €390m, about 18% of total institutional investment in microfinance worldwide. The full study can be accessed via the: Link*Crédit Agricole Asset Management* has joined forces with the French development agency, AFD, to launch the CAAM Avenir Durables fund, a sustainability fund dedicated to investment in developing countries.
The European Sustainable Investment Forum (EuroSIF) has published a report highlighting critical environmental, social and governance issues facing the European banking industry. The report notably looks ahead to impending regulation on the back of G-20 focus on higher capital requirements, better capital quality, lower leverage, further risk control and reform of governance and remuneration systems. The report was produced in partnership with CA Cheuvreux, the French broker. Forthcoming research includes reports on remuneration/long-term incentives and infrastructure this year.
To view the banking report, go to: Link
Avenir Global Investment Advisors, a new sustainability focused investment consultancy based in Geneva, has launched, backed by the founders of Blue Orchard Finance, the fast-growing microfinance company. Jack Lowe, chairman of Avenir and president of Blue Orchard, said “It is essential that financiers and investors anticipate the trend that is about to come, and immediately adopt a radically different approach”. Avenir’s advisory board is led by Burkhard Poschadel, former CEO of the GAM Group and a member of the Executive Committee of UBS Wealth Management.