RI August round-up

The RI round-up of August’s most important responsible investment news.

The UK Pension Protection Fund (PPF), which runs assets worth £1.5bn to compensate DB pension fund members in case of company insolvency, has taken a major step in its responsible investment strategy by hiring F&C Investments to provide voting and engagement services for its UK equities portfolio. F&C will also advise the fund on extending the RI strategy to other asset classes. The PPF will also make public its UK voting records and said it expected to report on engagement activities with companies in its portfolio. F&C will lobby companies on the PPF’s behalf to adopt best practice on issues including corporate governance, transparency and climate change. Martin Clarke, director of financial risk at the PPF, said: “These moves will help make sure that we build on our commitment, set out in our investment principles, to take account of ESG considerations when deciding where to invest. We believe that encouraging good practice in this area can reduce market risk and preserve shareholder value over the long-term. The PPF, which has signed up to the United Nations Principles for Responsible Investment (UN PRI) said it also monitored the extent to which its fund managers addressed ESG issues.
Dow Jones Indexes has teamed up with the Chicago Climate Exchange (CCX), to launch two new indices for investors seeking exposure to the European Union Emissions Trading Scheme and Kyoto Protocol Clean Development Mechanism (CDM). The two – the Dow Jones/CCX European Carbon Index and Dow Jones/CCX Certified Emissions Reductions (CER) Index – are the first in a series of joint global emissions indices. The Dow Jones/CCX European Carbon Index is composed ofactively traded European Union Allowances (EUA) futures contracts on the European Climate Exchange. It measures the present discounted value of EUAs—the carbon credits issued in the European Union Emissions Trading Scheme, across different maturities. The Dow Jones/CCX CER Index measures the present discounted value of CERs—the carbon offset allowances issued by the United Nations under the Kyoto Protocol Clean Development Mechanism, across different maturities.
Over a dozen leading UK, North American and European institutional investors, including F&C, the UK fund manager, have written to the Brazilian securities regulator, the Commissão de Valores Mobiliários (CVM), urging greater legal protection for minority shareholders. The action was triggered by a bid launched on August 6 by Votorantim Celulose e Papel (VCP), for control of Aracruz, a fellow pulp and paper producer. The investors said they have no objection in principle to the combination, but warned that it could come at the expense of minority investors in Aracruz’s voting and non-voting stock. As significant investors in the broader Brazilian market, the institutions said they feared the deal could bring damaging effects on both the value of their other Brazilian holdings and on confidence in the Brazilian market as a whole. The concerns have been echoed by institutional investors within Brazil, including the Capital Markets Investors Association (AMEC).
A report from WWF and Co-operative Financial Services has called on governments to halt licenses given to oil companies to extract oil products from tar-soaked shale or sands, claiming it creates up to eight times as many carbon dioxide emissions as conventional oil production.

The groups said they would follow up the report in September by lobbying members of the UK Social Investment Forum (UKSIF) to join the campaign to end production of so-called “unconventional fuels”. They want the UK and other countries to prohibit the sale and distribution of any oil products with higher emissions than traditional petrol. Link to report
The SEC has said it will seek comment on proposals to use international financial reporting standards by US issuers of securities starting in 2014 Under the proposal, the SEC would decide in 2011 whether adoption of IFRS would be “in the public interest and would benefit investors,” according to statement on its website. US issuers currently use generally accepted accounting principles (GAAP).
The International Corporate Governance Network (ICGN), which represents pension funds and investors with $15trn of assets, is urging the European Commission (EC) to rethink guidelines for capping auditors’ liabilities. ICGN said the proposals would reduce audit firm accountability and quality and provide incentives for audit shortcuts.
Greenhouse Capital Partners in California is reportedly planning to raise between $75m and $100m for its latest clean tech fund, reports the Cleantech Group. It said the firm aims to raise the fund early next year and was looking at creating a clean tech incubator for seed-stage venture deals.
Calvert, the US SRI mutual fund house, has created the Calvert Social Index, a benchmark for measuring the social performance of US-based companies. The index takes the 1,000 largest companies in the US and carriesout a social audit on each one in the following areas: governance and ethics; environment; workplace; product safety and impact; community relations; international operations and human rights; and indigenous peoples’ rights.
ING, the largest KiwiSaver pensions provider in New Zealand has added a Sustainable Growth Fund to its KiwiSaver, work-based DC pensions scheme. ING is now the 7th major Kiwisaver service provider to offer an SRI option. Robert Howell, CEO of New Zealand’s Council for Socially Responsible Investment said ING’s move showed investing responsibly was no longer an option but an imperative.
A report by DanWatch, the Danish NGO and commissioned by DanChurchAid and the Roskilde music festival, alleges that mobile phone companies including
Nokia, Motorola, Samsung, LG Electronics and Sony Ericsson are using cobalt in their phone batteries from the DR Congo, supplied by companies that could be supporting illegal export and unfair mining practices, which often involve severe human rights abuses.
DanWatch claimed the companies had made little, if any, effort to track the origins of the metals used in their phones, even though for many years they have been aware of the risks involved.
More than 40 trade union trustees from 11 countries – representing over US$900 billion in assets under management – met on July 9-10 in London to discuss the ongoing shareholder campaign regarding Burma, labour issues in an investment context and investing in green jobs. Participants included trustees from major public sector

pension funds, such as HESTA Superfund (Australia), Government Employees Pension Fund (South Africa), ATP (Denmark), ABP and PGGM (The Netherlands), and the State of Maryland (US). Several European occupational funds were also present, as was the French social security buffer fund, the Fonds de Reserve des Retraites (FRR). The meeting was organized by the Global Unions Committee on Workers’ Capital (CWC), which is coordinated at Canada’s Shareholder Association for Research and Education (SHARE). Link to conference report
Investment banks Merrill Lynch, Deutsche Bank and Goldman Sachs have agreed to buy back billions of dollars of auction-rate securities in a settlement settle with US state regulators that accused them of understating the debt’s risk to investors. The banks also agreed to pay more than $162m in fines. New York State Attorney General, Andrew Cuomo, who led the states, said other banks are still under investigation. Citigroup, JPMorgan Chase, Morgan Stanley, UBS and Wachovia Corp have already made similar settlements.
Danica Pension, the DKK241bn (€32.3bn) pensions arm of Danske Bank, is planning to roll out a new ethical investment policy from the end of next month, reports IPE.

A spokesman said the full policy would be published at the end of September.

Public criticism of its holdings in companies linked to the manufacture of cluster bombs forced Danica to offloaded DKK103m of shares in such firms earlier this year.
*Assets in carbon funds have grown by more than 63%*over the last year to reach $12.87bn against $7.9bn one year ago, according to research by Carbon funds magazine, part of Environmental Finance Publications.The research shows that 80 private-sector carbon funds, government procurement vehicles and buyers’ pools are now either operational, raising money or fully invested – a rise of 33% year-on-year in terms of the number of funds. Carbon funds generally buy carbon credits from projects in developing countries certified under the Clean Development Mechanism (CDM), which they sell or supply to companies to meet emissions reduction targets under the Kyoto Protocol or the EU Emissions Trading Scheme (ETS). Nonetheless, the research warned of a slowdown of capital into carbon markets because of uncertainty over global carbon markets after emissions agreements set under the Kyoto protocol ends in 2012, as well as the effects of the credit crunch. In 2007, total carbon markets globally – not just in funds – were worth around $64bn, up from around $30bn in 2006, according to figures from the World Bank. They are expected to grow to more than $100 billion in 2008.
Investment in venture capital and private equity investment in clean energy reached a new high of US$5.8bn during the second quarter of 2008, compared with US$2.6bn the previous quarter, according to new figures released by New Energy Finance (NEF). It noted that the clean energy sector had continued to see sustained investment despite the downturn of the global economy.
PGGM, the asset manager of the giant Dutch health

care pension fund PFZW, and one of the world’s largest responsible investors, has announced it is to begin marketing retail saving products directly to its institutional client base.
 PGGM will work with Kas Bank in the Netherlands on the new savings account.

Portfolio managers at more than two thirds of US funds houses are under pressure to deliver value on their long positions within a year, according to a new report by Cerulli Associates. In the survey of institutional and retail investment managers – mostly long-only – titled Best Practices for Portfolio Management Organisations, 68% said they evaluated their fund managers’ performances on a time frame of 12 months or less. Benjamin Poor, director at Cerulli, said: “Short-termism might also encourage bad behaviour; if entering the fourth quarter, a managing is lagging his benchmark, he may reason that he should ‘swing for the fences. Compensating employees based on longer term performance rewards investment acumen while discouraging short-termism.”
Governance for Owners, the London based shareholder activist and proxy voting manager has appointed former CalPERS president Dr Bill Crist as chairman to replace founding chairman Bob Monks, who steps down in October, but will remain as and advisor. Crist was president of CalPERS from 1992 until January, 2003. He is also Emeritus Professor of Economics at California State University.
CalPERS, the giant $247bn (€181bn) US pension fund for Californian public employees, is to invest up to 3% of its assets in infrastructure projects and is basing its fund management contracts on its Responsible Contractor Program. This includes guidelines for fair labour practices and the minimising of potential adverse impacts to public employee jobs in the development and operation of the projects.Lehman Brothers, the US investment bank, has been hit by a law suit over sub-prime losses from the £3bn Lothian Pension Fund and the £3bn Northern Ireland Local Governmental Officers Superannuation Committee, who are leading a group of pension funds from around the world in the case. The schemes allege the investment banking giant caused them major financial losses as a result of sub-prime investments, which Lehman has denied.
The majority (83%) of the UK general public would be less likely or unwilling to give to a charity if they found out it was not investing ethically, according to research by the EIRIS Foundation. The report said it highlighted a mis-match between public expectations and the number of charities actually investing ethically. A 2006 study found that just 55% of large UK charities had an ethical investment policy. Peter Webster, executive director of EIRIS, said: “If all the £56bn of UK charity investments was invested ethically this would send a powerful message to companies in terms of social, environmental and ethical corporate behaviour.”
The top ten most environmentally and socially controversial companies in the month of July 2008, according to press and NGO coverage, were Wal-Mart, Chevron, BP, E.ON, Gap, Shell, Electricité de France, China National Petroleum Corporation, Exxon and Giesecke & Devrient. The companies were criticised for issues including human rights abuses, severe environmental violations, impacts on communities, corruption and bribery, and breaches of labour, health and safety standards. Rankings are based on the Reputational Risk Index (RRI), as measured by Swiss-based ECOFACT.
The Corporate Library, the ten-year old US research centre on corporate governance, is becoming
a fully-fledged ESG risk research provider selling governance policy analysis and audit services to funds and investors. The group is adding global coverage to its LeaderBoard, an online research and business development database of over 50,000 of the world’s board and executive team leaders.
Google, Yahoo and Microsoft have announced that are close to finishing a voluntary code of conduct for doing business in China and other countries that censor the Internet. The companies said they had agreed on principles “protecting and advancing the enjoyment of freedom of expression and privacy globally.” Sweden’s AP pensions buffer funds have been engaging with Yahoo! over violations of freedom of expression in China by disclosing user information about a journalist that led to his imprisonment.The Los Angeles Fire and Police Pensions fund has reportedly invested in green-focused commingled funds with a $40m (€25.4m) allocation to Principal Green Property Fund I and Bond Companies Sustainability Fund, run by Principal Real Estate Investors. The fund is reportedly looking at similar green building commitments in the future.
ING Clarion Partners, one of the world’s biggest real estate managers has introduced a firm-wide program establishing sustainability guidelines for new acquisitions, development projects and the asset management of its real estate investments. The ING Clarion initiative is based in part on the Leadership in Energy & Environmental Design Rating System (LEED) established by the U.S. Green Building Council.