UK pension funds lack strategy on non-financial risks

FairPensions, the UK campaign for responsible investment, claims that funds recognise non-financial risks but have no strategy to meet them.

 

The report also questions whether the fund management industry is ready to meet changing needs in this area.

 

From the press release:

 

"The research, by FairPensions, includes a 'league table' of the UK's 30 largest pension funds, which together have 4.86 million members, are worth an estimated 351 billion pounds and are seen as industry trend-setters.

Scores range from 100% (USS, BT) to 0%. The average is 40%: a league table is available on request (see below).

All funds which submitted information now have statements recognising the potential impact of environmental, social or corporate governance (ESG) issues on financial performance, although a third apparently do not apply these to the instruction, selection or reporting requirements from their fund managers. Approximately half employ internal or external personnel responsible for ESG issues.

Public transparency is disappointing: almost half of the funds surveyed do not disclose their largest investments, and two thirds don't disclose their voting record (despite the government's power to force voting disclosure if voluntary disclosure is not occurring)."

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Financial firms fail to manage ESG risks

A new report by EIRIS finds that the financial sector performed worst at managing environmental, social and governance risks.

 

This major survey by the ethical investment research service compared 2,200 companies listed
on the FTSE All-Word Developed Index. The research tracked the companies' progress on managing non-financial ESG risk issues over a three year period (2005-2008).

 

More broadly across all sectors, EIRIS finds that there has been some but nevertheless limited progress on management of ESG risks over the period studied.

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New investors guide to climate-related investing

The Boston College Institute for Responsible Investment has issued a "Handbook for Climate-related Investing across Asset Classes".

 

The guide identifies both risks and opportunities related to climate change.

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Responsible investment now covers countries, too

It has always been the problem with campaigns to divest from resource-rich countries: there is always some state-owned enterprise waiting to swoop in.

 

A classic example: the campaign to divest from Talisman Energy when it had a large investment in oil production in Sudan and was thus seen to be funding the alleged genocide by the Khartoum regime. Talisman succumbed to the pressure, but Indian state-owned ONGC Videsh was happy to take its place.

 

Without a public listing, how could investors target the new operator? It looked like the only solution would be government to government.

 

This is why the new sovereign debt monitorig service by Asset4 is significant. Asset4 already monitors environmental, social and governance risks of other investment classes; now it will apply the same methodology to fixed income securities issued by governments.

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Norway bans Dongfeng, places Siemens on watchlist

The Norwegian oil fund, following a recomendation from its Council on Ethics, has banned investment in China's Dongfeng Motor company.

 

The rationale is that the company is supplying trucks to the Burmese military, so supporting a military dictatorship credited with widescale human rights abuse.

 

German engineering company Siemens is to be placed under close scrutiny by virtue of “gross and systematic corruption the group has been involved in over many years”. The fund owns 1.34% of Siemens stock as of the end of last year.

 

The Council on Ethics apparently recommended divestment now, so the Siemens statement is somewhat upbeat about the fact that the recommendation was not implemented. Bloomberg reports:

 

"Siemens “welcomes the decision by the Norwegian Royal Ministry of Finance for the first time not to follow the recommendation of the Council on Ethics and to remain invested in Siemens,” spokesman Marc Langendorf said in an e-mail. “Siemens has now implemented comprehensive measures in the area of compliance and established a long-term compliance culture.”

 

The Munich-based company has been embroiled in a bribery scandal since 2006, leading to investigations in at least a dozen countries. Units of the company have been charged with paying kickbacks and bribes to win contracts in Iraq’s government in the United Nations oil-for-food program and for projects including commuter rail in Venezuela, mobile-phone networks in Bangladesh, power plants in Israel and Russian traffic control."

 

The oil fund announcement, however, appears to suggest that going forward even a minor infraction by Siemens could trigger divestment.

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Investors target companies on new Climate Watch list

US investors have set up a "Climate Watch List" of companies viewed as lagging behind their industry peers on addressing climate change risks.

The investors - which include groups coordinated by Ceres and by the Interfaith Center on Corporate Responsibility - have already filed climate change-related shareholder resolutions with 8 of the 9 companies on the list, as well as with 49 other companies not on the watch list.

The shareholder resolutions demand greater disclosure about the nature and extent of climate change-related risks faced by those companies.

The Climate Watch companies include:

Electric Power: Southern
Coal: Massey Energy, Consol Energy
Oil & Gas: Ultra Petroleum, ExxonMobil, Chevron, Canadian Natural Resources
Automotive: General Motors
Home building: Standard Pacific

In addition to these Climate Watch List companies, resolutions have also been filed by investors with the following companies:

Auto/Transportation: Avis/Budget, Hertz

Banks: Ameriprise, Citigroup, Fifth Third Bancorp, State Street

Building and Big Box Companies: Bed, Bath & Beyond, Boston Properties, General Growth, Home Depot, Las Vegas Sands, Lennar, Pulte Homes, Ryland

Coal: Alpha Natural Resources, Foundation Coal, International Coal

Electric Power: Dominion, Dynegy, Idacorp, Mirant, NV Energy (formerly Sierra Pacific)

Forestry: International Paper, Meredith, RR Donnelly

Oil & Gas: ConocoPhillips, Haliburton, Noble Energy, Oneok, Range Resources, South Jersey Industries, Spectra

Other S&P 500 Companies: Apple, Aqua America, Assurant, Broadcom, Denbury Resources, Dover Corporation, Flowserve, Kadant, MetLife, Middleby, Novell, SanDisk, Southwest Airlines, St. Jude, Stryker, Valmont.

Canadian Companies: Great-West Life & Annuity

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RBS Failed Shareholders, Too

Sir Fred Godwin showed contempt for human rights. The Royal Bank of Scotland's shareholders should have taken notice.

When in August 2005 the Royal Bank of Scotland took a minority stake in the Bank of China, then CEO Sir Fred Godwin was challenged on whether human rights had been a consideration. Among other concerns of human rights activists, the Bank of China was a primary financial backer of China National Petroleum Corporation's development of Sudanese oil fields. Oil revenues were and are keeping the Khartoum regime in place as it pursues genocide in Darfur.

Sir Fred's response was documented at the time by The Herald newspaper: "It's important that we don't get involved in that in China, or any other countries we do business in."

Roll on three and a half years. A Scottish National Party MSP Christine Grahame has asked the police to investigate "whether the bank fraudulently sought investment from shareholders, many of them UK pension funds, knowing that the bank was insolvent."

If there is one thing, surely, that shareholders of every persuasion can learn from this, it is that ethics is indivisible. Shareholders have every reason to watch closely whether a corporation is demonstrating respect to all those potentially impacted by its decisions, even when the money is rolling in.

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Will the US government act as a responsible owner?

What kind of owner will the US government be having ploughed $200 billion into private financial institutions?

Against the background of growing interest in responsible investment, the launch of the UN Principles for Responsible Investment, and an increasingly activist institutional shareholder base, we now have a giant walking onto the stage: the US government.

The San Francisco Chronicle article linked here credits the government with having overcome Citigroup's resistance to breaking up its business and asks whether Bank of America may be next in their sights.

This could get even more interesting though. Private financial institutions have been coming under pressure to address their indirect social and environmental impacts, and to varying degrees have heeded that pressure by the publication of appropriate lending policies.

With a progressive government in Washington being forced to take large stakes in major financial institutions, surely there is an opportunity to bring greater balance (read responsibility) to the lending and underwriting decisions of their portfolio companies?

Let's hope that opportunity does not get missed.

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