RI round-up Feb 27, 2008

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

UK investor associations have renewed a call for companies to align director pay with performance in order to avoid what they called: ‘rewards for failure’. In an update on their joint statement on executive contracts and severance, first elaborated five years ago, the UK National Association of Pension Funds and the Association of British Insurers, said: “With the economic cycle apparently turning, now is a good time to remember that severance arrangements which reward underperformance damage the standing of business and undermine the integrity of executive remuneration, making it harder to reward success.” In the new statement of eight principles, the investor groups urged remuneration committees to consider giving director contracts of less than the standard one-year term to reduce the liability for payouts if an executive fails to perform. It said: “Compensation for risks run by senior executives is already implicit in the absolute level of remuneration, which mitigates the need for substantial contractual protection.” The guidance paper also said that remuneration committees should ensure that policy and objectives on directors’ contracts are clearly stated and include reference to pension arrangements.
Institutional investors in the International Corporate Governance Network will next month meet representatives of sovereign wealth funds in a bid to encourage them to be more transparent and act as “conscientious shareholders”. Peter Montagnon, chairman of the ICGN, said sovereign wealth funds could do one of three things: be passive, politically motivated, or be conscientious investors and has urged the latter.EU Trade Commissioner Peter Mandelson has called for a voluntary global code of conduct for sovereign wealth funds to ensure transparency and good governance. Mandelson told Agence France Presse: “We in Europe should welcome such investment from China and other wealth funds, and not reject it. But we need everyone to agree a code of conduct and principles governing the behavior of these wealth funds, which provides for transparency and good governance.’
Zurich-based Sustainable Asset Management (SAM) more than doubled assets under management during 2007 with business growing by CHF 4.7bn (€2.9bn) to reach CHF 8.5bn by the year end. It followed new fund launches during 2007 in the US, which it said had attracted interest from large foundations and family offices. The manager said it had also recorded strong demand in Japan, Hong Kong, Singapore and Taiwan. It started 2007 with an SRI mandate from ERAFP, the French civil service pension amounting to 100-400m for the period 2007-2011. Reto Ringger, founder and CEO of SAM: “The solution or, as it were, adaptation, to global warming represents an enormous challenge and in this century it will become the most significant economic tasks and opportunity. As one of the first, and today leading, providers of sustainability investment solutions, SAM is strongly positioned to develop new investment products and benefit from this long-term megatrend.” SAM said it estimated that the volume of assets amount of money managed in sustainability and theme-based funds was still under 1% of total investable capital. It predicts that the intensive search for technical climate 

change mitigation solutions and successful companies will multiply investment volume during the coming years. In December, 2006 Dutch fund manager Robeco bought a 64% stake in SAM.
Eumedion, the Dutch institutional corporate governance association, has rejected proposals in the first draft of Dutch legislation on shareholders’ rights as unnecessary and incompatible with other EU states’ activity, reports ipe.com. The Dutch government issued a consultation document in January with the aim of reviewing shareholder activism and concerns over investors acting in concert. A similar review has been taking place in Germany. Eumedion said it questioned proposals that would lower to 3% from 5% the level at which shareholders must publicly declare company shareholdings. It also challenged a proposal that could force shareholders with a 10% stake to report their intentions towards the company they invest in. It said: “Some proposals, and reporting of intentions in particular, are ill thought-through, and difficult to carry out. They will damage the attractiveness of investing in the Netherlands because of unnecessary administrative costs.” Eumedion has advised the government to investigate thoroughly which rules are needed to improve efficiency.
HSH Nordbank, the state-controlled German regional bank, says it plans to sue UBS over alleged mis-selling and poor management of a $500m portfolio of collateralized debt obligations linked to the US mortgage market, which it bought from UBS in 2002. HSH said it wanted to recover “significant losses” and would file the claim by the end of February unless it could enter into serious discussions with UBS.
French and German politicians have warned the European Commission not to risk the competitiveness of European industry by adopting tougher pollution measures than other parts of the world.
Herve Novelli, France’s junior minister for industry, said Europe should lead by example but not “change thecompetitiveness of our economy and our companies”. France wants the EC to introduce a carbon tax against imports from countries that do not agree to cut greenhouse gas emissions.
Climate Change Capital, the clean energy investment banking group, has appointed two senior property investment managers as it seeks to grows its sustainable property business. The firm has hired Esme Lowe, a former director of Capital Trust, the property investment firm, and Tim Mockett, former property director at Stow Securities. Mark Woodall, Chief executive of Climate Change Capital, said: “The value of commercial property will increasingly be driven by sustainability and climate change issues. The move to create low carbon buildings will accelerate and both occupiers and investors will drive this shift, motivated by the desire to reduce energy costs, corporate social responsibility, brand value, and the need to future-proof their properties.”
The UK government has commissioned a study into the environmental and economic effects of increased demand for biofuels made from organic matter. Ruth Kelly, transport minister, said that the newly established Renewable Fuels Agency would lead the study. The report will particularly focus on the indirect impacts of biofuels such as loss of agricultural land, deforestation and increased food prices.
The EU is to allocate €9bn to investment in sustainable energy projects in Europe’s most remote and economically deprived regions. The investment is part of its cohesion policy for 2007-2013.
The Canadian Pension Plan Investment Board (CPPIB) has encouraged local firms to respond to the Carbon Disclosure Project’s (CDP) questionnaire sent out to 3,000 companies worldwide, reports Global Pensions magazine.
The fund said: “Improved disclosure on climate change related risks and opportunities through mechanisms such as the CDP is necessary as it enables long term investors like us to incorporate the potential investment impact into our investment decisions.”