RI round-up Feb 21, 2008

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

The New Zealand government has come under fire over investments by the country’s $13.8bn Superannuation Fund in companies linked to the manufacture of cluster bombs during the country’s hosting of a five-day conference to explore an international treaty on cluster munitions, attended by delegates from 122 countries. New Zealand Green Party co-leader Russel Norman, claimed the fund had increased its investment in cluster-bomb makers. He said investments in Lockheed Martin, the US group, had recently grown from $15.8 million to $21.9m, and a stake in Raytheon, another US group, from $1.5m to $2.3m. Both companies are on the banned list of funds including the Norwegian Government Pension Fund for their links to cluster bombs. Other firms on New Zealand Super’s investment list linked to the making of cluster bombs include Thales and EADS in France and Northrop Grumman in the US. Responding to the allegations, Phil Goff, New Zealand’s Disarmament and Arms Control Minister, said: “In fact, the Super Fund has quite publicly withdrawn investments from a number of companies which were very closely associated with the production of cluster munitions. There is no inconsistency in the Government position.”
Ethos, the Geneva-based foundation which looks after CHF2.3bn (€1.4bn) in assets run on a socially responsible basis on behalf of Swiss pension funds, says responses by UBS, the Swiss banking group, to its call for an independent audit on $13.7bn (€9.6bn) losses as a result of the US sub-prime mortgage crisis “cannot beconsidered satisfactory.” The foundation has renewed calls for a special audit of the bank ahead of UBS’ extraordinary general meeting on February 27 and is urging shareholder support for the proposal. Ethos said that despite the bank’s explanations it still had concerns over the separation of risk management and risk control functions. It said it was also concerned to ensure that the remuneration of risk control employees was free of elements that could generate conflicts of interest.
It said UBS’ responses did not allow shareholders to determine whether its risk management and risk control systems had failed or not in the lead up to the losses. The foundation said: “Clear answers are necessary for shareholders to exercise their voting rights knowledgeably.”
The €2.8bn Dutch industry-wide PNO media pension fund has hired Hermes Equity Ownership Services as external SRI adviser after implementing a new SRI policy, reports ipe.com. Under the new policy, PNO will publish all listed and unlisted equity holdings as well as its stock exclusion list, which now includes eleven companies involved in the production of arms and nine which make or sell products containing fur. The PNO member scheme of broadcasting organisation Llink threatened to leave the fund last year after research showed PNO invested in companies involved in arms trade, major pollution and violation of human rights. In a statement, Llink said it welcomed the changes: “Because PNO will from now on invest the pension money of the broadcasting workers in a responsible way, it is giving
the right example to other investment organisations.”
The pension fund of the Belgian East-Flanders region is investing in a €117m renewable energy project via the Gent-based solar energy specialist Enfinity1, reports ipe.com.
The fund said it was committing €5m to the project, which will install solar panels at offices in Belgium in the next few years.
Investments over the next decade in energy productivity could earn double-digit rates of return for investors, according to a report by the McKinsey Global Institute. The reports says energy productivity investments would cut global energy demand growth by at least half and achieve up to half of the reductions of greenhouse gas emissions experts say are required to prevent the world’s mean temperature from increasing by more than 2 degrees centigrade. The report said additional annual investments in energy productivity of $170bn up to 2020 could cut global energy demand growth by at least half—the equivalent of 64 million barrels of oil a day or almost one and a half times today’s entire U.S. energy consumption. It estimated that the average internal rate of return for such investments was in the order of 17%. Click here for report
Bill Lerach, the high-profile US securities litigation lawyer has been sentenced to two years in prison by a Los Angeles federal court. Lerach agreed to plead guilty in September 2007 to playing a role in an alleged kickback scheme at his former law firm Milberg Weiss. US prosecutors claimed Milberg Weiss shared legal fees with clients to induce them to quickly file securities class actions. Lerach is no longer a member of the San Diego firm, which is now known as Coughlin Stoia GellerRudman & Robbins
Japan, Britain and the US are reported to be readying a special clean technology transfer fund in collaboration with the World Bank, which could be valued at more than $10bn. Japanese prime minister, Yasuo Fukuda, has revealed plans for the five-year “Cool Earth Partnership” fund, which aims invest $8bn in climate change mitigation and $2bn in helping developing economies switch to clean energy technologies. The fund is likely to promote development and adoption of low carbon technologies in developing economies such as India and China.
The Dutch government is reportedly debating whether to impose a ‘motivation’ test on sovereign wealth funds from the Middle East and Asia should they wish to take stakes in strategically important national companies, according to Dutch newspaper De Volkskrant. It follows similar debates in the US congress about stakes in US financial services companies acquired by sovereign funds.
The UK Association of British Insurers is petitioning the Financial Services Authority to oblige holders of contracts for difference (CFDs) – contracts that mirror the performance of a share or an index without any physical ownership – to declare what they hold over a certain level unless they do not intend to use the voting rights attached to the underlying shares. In response to a consultation launched by the FSA, the ABI said it wanted a regime to be devised for contracts-for-difference, which can sometimes mask the true influence of shareholders on a particular company.
The ABI wants all positions of 3% or more to be

disclosed – the same as for holders of actual shares – including when this figure is partly made up of shares held to exposures through CFDs. Contracts for difference are estimated to account for 40% of daily trading volumes on UK stock markets.
A carbon price of at least €50 and closer to €100 per tonne of CO2 is required before industry will invest in carbon-capture-and-storage (CCS) schemes, used to extract carbon from the burning of fossil fuels, a senior executive at Shell has warned. Jeremy Bentham, vice president of business environment at the company, said companies needed the right regulatory framework and pricing structure before they would invest. Bentham called on the EU to speed up regulatory change and take vital decisions within the next five years that would shape the pattern of energy supply and global warming in coming decades. A recent report by the London Accord, supported by major global financial services companies, said that CCS was an unrealistic investment at prices for greenhouse gas emission allowances below $45 (€32) per tonne. Carbon is currently trading at just over €21 per tonne.
Kristin Halvorsen, Norway’s finance minister has said she believes the ethical policy of the €250bn ($366bn) Norwegian Government Pension Fund, can act as a model for investors worldwide: Writing in the Financial Times, Halvorsen said: “I am pleased to see that the ethical guidelines, and our enforcement of them, are being noticed and in some cases copied by other funds both domestically and internationally. This gives me confidence that ethics will become a permanent and vital part of fund management across borders and investorsmay mutually inspire each other in this pursuit.”
Global investor groups on climate change have formed an alliance to encourage voluntary disclosure standards for electricity firms.
The Institutional Investors Group on Climate Change (IIGCC) in Europe, Ceres, the US environmental coalition, and Australia and New Zealand’s Investor Group on Climate Change (IGCC) have jointly prepared a set of standards for power companies, covering exposure to regulatory constraints on emissions, climate change strategies and planned new builds. They are asking for information on implications of climate policies, emissions reduction targets and strategies, the impact of emissions on power prices and the effect of changing weather conditions on output and demand. Companies are also are also asked about their use of carbon credits from Kyoto Protocol-based projects. The standards were drawn up in consultation with the power sector.
European institutional investors missed out on damages worth $3.6bn from US securities class actions between 2000 and 2007, according to GOAL Group, a UK-based class action services specialist. GOAL said European investors had not followed US investors in claiming due damages from corporate governance scandals such as Enron and could miss out on claims over the sub-prime mortgage crisis.
Shareholders at US mutual funds could be able to vote on whether funds should withdraw their investments from companies operating in or supporting Sudan, following a ruling by the Securities & Exchange Commission preventing Fidelity, from excluding a resolution submitted by Investors Against Genocide, a

non-profit group. The resolution, which will be voted on at several Fidelity funds on March 19, calls on the US fund manager to divest from PetroChina, which has ties to the Sudanese government through its parent, China National Petroleum Company.The SEC ruling clears the way for the IAG resolution to appear on the ballots at other mutual funds this year, although its inclusion can be challenged on a case-by-case basis with the SEC. Investors Against Genocide, previously known as the Fidelity Out of Sudan campaign, is a Boston-based organization that has received support from 46 Massachusetts legislators, the National Council of Churches, and the American Jewish World Service, among others.
France’s Caisse des Dépôts (CDC) has launched CDC Biodiversité, an investment support initiative for public and private actors in the area of biodiversity. The group said CDC Biodiversité’s first projects would involve real estate and transport infrastructure projects where it will act as an adviser and financier to support long-term ecological management objectives.
Almost 90% of French fund managers now inform their institutional clients on their shareholding voting policies reflecting a growing appetite from investors to vote their shares, according to AFG, the French fund management association. In its sixth annual consultation with its members on voting issues, AFG said that participation rates by investors at French company AGMs was now at a level of about 90%. It said that investors expressed at least one ‘no’ vote at 55% of the AGMs attended. Last year’s biggest ‘no’ vote theme for fund managers was the dilution of shareholder capital through rights increases, it said.Cazenove Capital Management will donate a portion of fund management charges to UK children’s charities, through an partnership with the Fund Aid Foundation, via a new unit class for its Multi-Manager Diversity Fund. The Fund Aid Foundation was set up to encourage charitable fundraising in the financial services industry and will initially support five charities at launch – Acorn’s Children’s Hospice, ACT, Childrens Trust, CLIC Sargent and Treehouse. The foundation aims to raise £3 million in its first year.
Allchurches Investment Management Services, a subsidiary of the Ecclesiastical Insurance Group, is rebranding to become Ecclesiastical Investment Management. The manager has also extended its SRI screening policy to its European funds and launched a new SRI UK bond fund.
The American Federation of State, County and Municipal Employees, whose members participate in public pension funds with combined assets worth more than $1 trillion (€678bn), has proposed that Morgan Stanley’s board hold an advisory vote on executive pay at each annual shareholder meeting, reports efinancialnews.com. The proposal on the bank’s proxy statement said: “In our view, senior executive compensation at Morgan Stanley has not always been structured in ways that best serve shareholders’ interests. For 2006, Mack (John Mack, CEO and board chairman) received more than $37m in total compensation, of which over $36m was in the form of restricted stock that vests based on the passage or time, not the achievement of performance goals.” A say-on-pay proposal was defeated at Morgan Stanley’s annual meeting last year with 46% of shareholders voting against and 29.7% in favour.