Top Stories

January 20, 2017

Responsible Investment

Ilmarinen starts linking portfolio managers’ incentives to sustainability

Ilmarinen, Finland’s second-largest pensions insurance company, says it is adopting sustainability benchmark indices in its investment operations on a “broad scale” and with the move aims to be a leader in responsible investment. Ilmarinen emphasised that responsible investment was part of risk management and did not mean compromising on return targets. Under the new approach, stock choices will be compared with the indices – based on sustainability ratings produced by MSCI – which Ilmarinen says include the most responsible companies in each sector and geographical area. Mikko Mursula, Ilmarinen’s CIO, said: “The performance of the portfolio managers will be compared against the benchmark index, and their incentives will be tied to it.” Although a number of investors have already implemented indices and funds that focus on sustainability, Mursula said it was still rare for institutional investors to use ESG benchmark indices on this scale. (Investment & Pensions Europe)

Corporate Reputation

New report exposes HSBC as the bank responsible for Indonesian deforestation

A new report released by Greenpeace International has revealed how HSBC, Europe’s largest bank, loaned hundreds of millions of US dollars to some of the most destructive palm oil companies in Indonesia. In the past five years alone, HSBC has been part of banking syndicates that arranged US$16.3 billion of loans (and nearly US$2 billion of bonds) to six companies whose palm oil operations have destroyed vast areas of rainforest, peatland and orangutan habitat in Indonesia. Deforestation and peatland destruction by Indonesia’s palm oil and pulp sectors is widely acknowledged as a root cause of forest fires and haze. A study by Harvard and Columbia universities estimates that over 100,000 adults across Southeast Asia died prematurely as a result of the 2015 haze crisis. Many of these actions breach the laws and regulations that govern Indonesia’s plantation sector.  Lending to these companies also breaches HSBC’s sustainability policies. The financial support provided by HSBC and other international banks contrasts sharply with public opinion and consumer companies demanding responsibly produced palm oil. (Blue & Green Tomorrow)


Rolls-Royce lobbied ministers to weaken anti-bribery proposals

Rolls-Royce, which this week agreed to pay £671m in penalties after admitting it had engaged in corruption, lobbied ministers to weaken proposed curbs on bribery a decade ago. Minutes of a meeting in July 2004 show that Rolls-Royce told civil servants it refused to disclose any details of its middlemen to the government as they saw these arrangements as strictly private on the grounds that they “operated in a particular environment” that “was very competitive with a small number of large companies”. In his judgment approving the Rolls-Royce settlement this week, Sir Brian Leveson described how the firm had systemically used middlemen to funnel “truly vast corrupt payments” to secure contracts. The bribes were paid to win contracts in countries including Indonesia, China, Russia, Thailand, Iraq and Angola, earning more than £250m in profits. (The Guardian)

Supply Chains

Big business launches new data alliance on deforestation

A deal brokered by the World Resources Institute (WRI) at the World Economic Forum in Davos on Wednesday saw 20 of the world’s biggest corporations such as retail giants Carrefour and Walmart and snacks firms Mondelez International and Mars agree to deploy a monitoring framework to increase the transparency and traceability of the raw materials they use, such as palm oil, soy and cocoa, with a combined value of US$2.9 trillion. The tool is an additional feature of WRI’s Global Forest Watch Commodities platform that enables companies to monitor the health of their supply chains. Using the technology, firms can now plot the locations of the production mills and farms they source from, and get alerts of deforestation or fires. Those who have signed the deal include: Bunge, Cargill, Conservation International, Daemeter, IOI Group, the Inter-American Investment Corporation, FMO–Dutch Development Bank, National Wildlife Federation, Rainforest Alliance, Proforest and The Nature Conservancy. (Eco Business)

International Trade

China GDP hits 2016 target as Trump headwinds loom

China had the slowest full-year growth figure since 1990 but comfortably within the government’s target range of 6.5-7 per cent. The fourth-quarter performance topped economists’ expectations of 6.7 per cent, according to a Reuters poll.  Mr Xi has defended free trade and globalisation, drawing an implicit contrast with Mr Trump. Economists say a trade war could exact a heavy toll on China. Zhu Haibin, chief China economist at JPMorgan in Hong Kong, notes that gross exports are more than 25 per cent of Chinese GDP, while labour-intensive export industries are disproportionate sources of employment. That means that large swaths of workers could be affected if exports suddenly fell.  “China is a very export-oriented country. Many people work in these areas. If you have a 10 per cent decline in exports to the US, that will affect lots of workers,” said Mr Zhu. However, the variable that directly affects GDP would be little affected. (Financial Times)

Image source: Mato Grosso deforestation. This photograph was produced by Agência Brasil, a public Brazilian news agency.  Licença Creative Commons Atribuição 3.0 Brasil