News and comment from the June/July edition of Corporate Citizenship Briefing, issue 106
Major mutuals funds boost support for shareholder climate change resolutions
A growing number of investors are pressuring companies whose stock they own to boost their attention to the business risks and opportunities posed by climate change. According to a new report by Ceres, released on June 4, called ‘Mutual Funds and Climate Change: Growing Support for Shareholder esolution’, a dozen major fund companies – led by TIAA-CREF, Charles Schwab and Credit Suisse – cast a majority of their 2008 proxy votes in favour of climate-related resolutions. But several fund giants still lag behind the rest of the industry in their handling of climate resolutions, including Fidelity and Vanguard, who did not support a single climate resolution in 2008 or in the previous four years. Contact: Ceres www.ceres.org
Non-green asset managers could be sued
Investment advisors and asset managers could be sued for negligence if they do not incorporate environmental, social and governance (ESG) issues into their investment services, a UN report announced on 14 July. The report, produced by the Asset Management Working Group of the UNEP Finance Initiative (UNEP FI), which represents over 180 financial institutions worldwide with $2 trillion in assets under management, underlines how the world’s largest institutional investors have a central role in assisting the transition to a lowcarbon economy and therefore have a legal responsibility to integrate ESG issues. Indicative legal language that can be used to embed ESG considerations into the investment management agreements and related legal contracts is also provided in the report. Contact: UNEP Finance Initiative www.unepfi.org
Investors urge sec to enforce climate change disclosures
The investor community is making another attempt to push the US Securities and Exchange Commission (SEC) to improve disclosure of climate change risks. Members of the Investor Network on Climate Risk and other leading global investors sent a letter to the SEC on June 12, requesting that the Commission address the lack of corporate disclosure of climate change and other material environmental, social, and governance (ESG) risks in securities filings. Specifically, the investors are requesting that the SEC issue formal guidance on material climate-related risks that companies should disclose and enforce existing disclosure requirements for climate change and other risks such as water scarcity and labour practices. They also want the SEC to recognize shareholders’ right to submit resolutions related to climate change and material ESG issues as well as require the disclosure of these risks using the Global Reporting Initiative as a framework. Contact: Investor Network on Climate Risk www.incr.com
Barclays will provide £9.5 million Futurebuilders England funds
Futurebuilders England announced on June 16 a new partnership with Barclays Commercial Bank, whereby the bank has agreed to allocate £9.5 million to match the funding of the government’s Modernisation Fund. Barclays will work with Futurebuilders, on a case by case basis, to provide loans to Third Sector organizations to help them become more resilient to the impact of the economic downturn. Where larger Third Sector organisations require funding in excess of the Modernisation Fund’s £500,000 loan limit, Barclays will look to provide the additional funding required. The bank has also agreed to provide professional support to charities on how best to structure their finances as well as help organise and jointly run seminars designed to give Charity Finance teams’ guidance, support and the right financial know-how to support borrowing. Contact: Futurebuilders www.futurebuilders-england.org.uk
Indices to track companies embracing low carbon economy
On June 18, Markit and the Carbon Disclosure Project (CDP) announced their intention to launch a family of investment indices reflecting the financial performance of companies with strong carbon management strategies. By combining CDP’s benchmark climate change data and Markit’s index expertise, the two companies aim to create a family of high quality equity indices that will help investors gain exposure to companies that actively manage their impact on the environment. Markit and CDP plan to launch an index for the UK and Europe, in addition to a US index and a global index. Markit intends to license the indices to exchange-traded fund and
structured product providers. Contact: Markit www.markit.com
FTSE new investment tools support low carbon economy
On June 15, FTSE Group announced the launch of new capital investment tools to help investors identify and gain exposure to the rapidly growing environmental technology sector. The new tools aim to support global capital markets’ response to developing a low carbon economy. They include the world’s first global environmental markets industry classification system, designed to allow companies to be classified by sector and sub sector according to the environmental products and services they provide. In addition, seven new equity indices which use the new environmental markets classification have also been created. Contact: FTSE www.ftse.com
Market investors want more disclosure on ESG issues
Seven out of ten major asset managers and institutional investors collectively representing $130 billion of emerging market investments cited lack of environmental, social and corporate governance (ESG) disclosure as the key challenge to investing in emerging markets. That is the main finding of a new survey, released on 25 June, from the Emerging Markets Disclosure (EMD) Project, an international coalition of investors and organisations working to improve sustainability disclosure by companies in emerging markets. The survey was analysed by EIRIS and sponsored by the International Working Group of the Social Investment Forum, which provided organizational support for the project. Survey respondents commended two emerging market countries – Brazil and South Africa – for having made the most progress towards greater ESG disclosure. Contact: Social Investment Forum www.socialinvest.org
Comment
It is widely accepted that the causes of climate change are complex and diverse. At the same time, it seems that the mechanisms by which companies are held to account for their contribution to global warming are also proliferating. Alongside green taxes, carbon trading schemes and environmental legislation, business is now facing increasing pressure from the investment community.
In recent months, there has been a discernable shift in emphasis on the part of institutional investors. As several of these news reports suggest, corporate performance on climate change is rising in importance as it becomes a more material risk to business success.
This trend is compounded by the findings of a recent report from the UNEP Financial Initiative. The authors of this report argue that investment advisors and asset managers could be sued for negligence if they do not consider the environment and other social issues when making investment decisions. Apparently they have a legal responsibility to raise concerns about such aspects of corporate behaviour when offering investment advice to clients.
This raises the game for all companies, not simply those with a large or obvious environmental impact. There will be growing scrutiny of their environmental credentials and risk management systems by investment advisors. The increased threat of shareholder resolutions related to environmental performance cannot be dismissed. Each business needs to think carefully about its level of disclosure in this area if it is to avoid an embarrassing confrontation at the next AGM. The need to understand the full extent of your environmental impacts, and to report on these in an appropriate way, has never been more pressing.
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