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What's New(s) in ESG: August 20, 2018

Dmitriy Ioselevich

Here are the top stories in ESG from the U.S., the EU and around the world.


Financial Times: Companies With Strong ESG Scores Outperform, Study Finds

Companies with better environmental, social and governance standards typically record stronger financial performance and beat their benchmarks, according to research from Axioma. The risk and portfolio analytics provider said the majority of portfolios weighted in favour of companies with better ESG scores outperformed their benchmarks by between 81 and 243 basis points in the four years to March 2018.

Financial Times: Environmental Risk Heats up For Pension Investors

Pension funds across Europe are belatedly waking up to the threats to their investment portfolios posed by climate change, according to Mercer. The investment consultant's 2018 survey shows that 17 per cent of European pension funds consider the investment risks posed by climate change, up from just 5 per cent in its 2017 survey. Mercer, which is one of the largest advisers to institutional investors worldwide, has been pushing its clients to identify, assess and act on climate change risks since 2011. Yet progress has so far proved slow judging by its latest annual survey, which gathered responses from 912 pension funds across 12 European countries managing total assets of €1.1tn.

Institutional Investor: Trump Asks SEC to Consider Nixing Quarterly Reports

President Donald Trump reopened a long-simmering debate Friday by proposing that the Securities and Exchange Commission consider doing away with quarterly financial reports for publicly traded companies. “In speaking with some of the world’s top business leaders I asked what it is that would make business (jobs) even better in the U.S. ‘Stop quarterly reporting & go to a six month system,’ said one. That would allow greater flexibility & save money. I have asked the SEC to study!” Trump tweeted Friday morning, saying he spoke with outgoing Pepsi CEO Indra Nooyi. (Read more: The Washington Post, AP, Pensions & Investments)

Pensions & Investments: 2018 Proxy Engagements Focused on Boards, Compensation – Vanguard

Board composition and executive compensation were prominent themes in Vanguard's engagements with global companies in the 2018 proxy season, shows the firm's annual proxy-season report released Thursday. During the 2018 proxy season, Vanguard engaged with 721 companies, in which it had invested a total of $1.62 trillion, or 47% of its total equity fund assets under management, according to the 2018 report. That compares with 954 company engagements, representing $1.138 trillion in AUM in 2017. Board composition — diversity, skills, tenure and independence — and executive compensation were each discussed in about 50% of the firm's engagements this proxy season.

Bloomberg BNA: Proposed Regulatory Regime for Proxy Advisers Sees Lobbying Lift

Legislation to set up a regulatory regime for firms that give investors advice on how to vote their shares in public companies has seen more lobbying activity lately, according to a Bloomberg Government analysis of required disclosures. The most frequent filer for lobbying is Nasdaq Inc., a vocal supporter of the bill. The stock exchange is followed in number of filings by Exxon Mobil Corp., which has faced negative recommendations from proxy advisers before, and the U.S. Chamber of Commerce, Washington’s top lobbying spender overall.

Responsible Investor: GMO’s Grantham Issues Powerful Argument in Favor of Fossil Fuel Divestment

Jeremy Grantham, co-founder of Boston-based investment firm GMO and donor to climate change institutes at Imperial College and the London School of Economics, has issued a powerful argument for investors to get out of fossil fuels. In a new white paper, he sets out to challenge investment committees’ “erroneous” notion that you lose returns by divestment. Grantham notes the challenges facing oil and chemical firms, saying: “It should be pretty clear from this discussion that if you’re messing around with oil stocks, you’re taking the serious risk of ending up with stranded assets, and if you’re messing with chemical companies of the toxic kind, you are taking some risks also.” (Read more: GMO)

Pensions & Investments: Chicago Teachers Plan to Divest Private Prison Companies

Chicago Public School Teachers' Pension & Retirement Fund added private prison companies and businesses that operate immigration child detention centers to its list of prohibited investments, said Angela Miller-May, chief investment officer of the $9.8 billion pension fund, in an email. At its Thursday board meeting, the pension fund board directed investment staff to instruct the fund's investment managers to "prudently liquidate public market holdings in (these) companies as soon as reasonably practical and in accordance with the managers' fiduciary duties," Ms. Miller-May wrote. The pension fund estimates it has approximately $548,000 invested in these companies. (Read more: Reuters)

Bloomberg BNA: Calif. Pensions Reviewing Investments Tied to Border Enforcement

California’s two largest public pensions are reviewing their investments in hedge funds and companies that have ties to the Trump administration’s immigration enforcement efforts at the U.S.-Mexico border. Some of those companies include General Dynamics Corp ., GEO Group, and CoreCivic Inc . All three own or provide services to private prisons that have been used to detain immigrants. The American Federation of Teachers recently called on pension funds nationwide—including the California State Teachers Retirement System and the California Public Employees Retirement System—to look through their portfolios for asset managers invested in companies it says are profiting from detaining families.


The Wall Street Journal: Companies Shouldn’t Be Accountable Only to Shareholders

By Elizabeth Warren (Senator, D-MA)

Corporate profits are booming, but average wages haven’t budged over the past year. The U.S. economy has run this way for decades, partly because of a fundamental change in business practices dating back to the 1980s. On Wednesday I’m introducing legislation to fix it. The Accountable Capitalism Act restores the idea that giant American corporations should look out for American interests. Corporations with more than $1 billion in annual revenue would be required to get a federal corporate charter. The new charter requires corporate directors to consider the interests of all major corporate stakeholders—not only shareholders—in company decisions. Shareholders could sue if they believed directors weren’t fulfilling those obligations. (Read more: Vox, CNBC)

Forbes: Why Socially Responsible Investing Skepticism Is Healthy

By Martin Whittaker (JUST Capital)

This may sound like heresy coming from someone who’s spent his entire professional life in the sustainable finance space, but I think it’s increasingly important to hear from SRI and ESG skeptics. Two reasons: First, because it requires proponents (myself included) to mount evidence-based, quantitative financial arguments in response. And second, because it disciplines the thinking of those who would advance the SRI, impact, and ESG fields in the future, and so drives innovation.

Forbes: To Invest For Impact, We Need To Start By Agreeing What 'Impact' Means

By Michele Giddens (Bridges Fund Management)

There’s no doubt in my mind that one of the biggest barriers to the growth of impact investing is the lack of consensus about what ‘impact’ actually means. If you’re a big investor looking to commit your money to investments that are making a positive difference, how can you be sure that everyone involved in the process shares your understanding of what you’re trying to achieve? Or to look at it another way: if ten different investment opportunities have ten different ways of stating their goals, and ten different ways of reporting their impact, how are you supposed to judge which one is the best fit for you? The inevitable result is that investors feel unable to make an informed decision, and their capital remains on the sidelines.

Forbes: Impact Investing: The Intersection Of Funding Founders Of Color

By Kori Hale (CultureBanx)

In the past couple of years, lots of capital has poured into social impact businesses, taking pages out of the original black investors playbook. Since venture capital funds have long sought out high growth companies with strong bottom lines, factoring in a new level of consciousness can be tricky. Now with impact investing on the rise are we likely to see more black venture capitalists as the old becomes new again?

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