Friday, September 12, 2014

Banks showing limited commitment to responsible investing

Despite the growth in responsible investment as reported by various sustainable investment forums, such as Canada’s Responsible Investment Association, the uptake of responsible investing in the banking sector leaves much to be desired, according to an extensive report on banking from RI research firm Sustainalytics.

Only 7% of banks surveyed by Sustainalytics report that the share of responsible assets is more than 5% of total assets under management. Nearly all of these institutions are from Europe, with three from North America and one from South America.

Another 96 institutions (27%) either have less than 5% of AUM dedicated to RI assets or do not disclose the value of their RI assets. Two hundred and forty-one institutions (67%) don’t provide any evidence of RI assets under management.

Further, just 20% of the banks around the world surveyed by Sustainalytics are PRI signatories. And only 27% have published some kind of responsible investment policy.

Only 6% of banks live up to Sustainalytics highest requirements, which include the application of at least two out of three RI strategies: exclusion, best-in-class and engagement. 

“While a number of banks are engaged in RI, the majority of them are not PRI signatories, do not have RI policies in place and have not disclosed responsibly management assets,” the report says.

The report notes that the banking industry supports a wide range of sustainability related products and services, including green consumer loans, rebates for energy efficient home retrofits, large scale renewable energy project and green bonds.

In fact, 72% of banks assessed on this indicator have disclosed programs or activities to promote sustainability-related products and services, mostly in the form of clean energy financing and consumer loans. Eleven banks stand out for setting quantitative targets to expand sustainability financing commitments within a specific time frame.

We have clout, let's use it!

Some good ideas from the Guardian....

Originally published August 22nd, 2014

Responsible investors working together can drive a silent revolution

A new study of listed companies shows a high presence of investors signed up to the Principles for Responsible Investment - what if they were to speak with one voice on sustainability?

Far from ignoring issues such as the impact of climate change or the growth in social inequalities, there is a growing movement within the financial community to respond to these challenges by fostering responsible investments and businesses where long-term thinking is prioritised.
According to recent research by NASDAQ OMX, more than one-third of capital invested by asset managers in publicly-traded companies is currently held in portfolios for at least five years – a key measure for long-term investing – the highest level since the financial crisis.
Long-termism and responsible investing have found two key supporters in recent years. One being the Sustainable Stock Exchange (SSE) initiative where stock exchanges work together to create more sustainable capital markets through enhanced corporate transparency. Secondly, the growing number of institutional investors collaborating through the Principles for Responsible Investment (PRI) initiative to support responsible investment practices. PRI has grown significantly since its early days when a small group of 20 institutional investors representing $2tn launched it in 2006, supported by UN. The initiative now has 1,260 signatories representing $45tn in assets under management (AUM).
But how exactly that collective size translates in terms of share ownership in listed companies across the world, has been unknown until now. Recently, our organisations jointly conducted a study to uncover the actual presence of PRI signatories in companies in which they invest - the key factor in determining their potential to influence business behaviour. We were surprised by what we found.
In a worldwide sample of 379 listed companies with a combined market capitalisation of $19tn, our PRI equity ownership study revealed that signatories of the PRI on average hold nearly half of all the shares held by asset managers in those companies. The analysis focused on companies with optimum levels of ownership data available and that were representative of all sectors and major markets. Given that the formidable combined weight could be leveraged on companies where institutional investors are considered key stakeholders, this should give business leaders pause.
But can PRI investors become active owners and speak with one voice? A strong collaborative effort will be required, and this is perhaps the biggest challenge.
Having achieved sizeable presence in listed companies, PRI signatories should be able to influence those businesses to achieve a better environmental, governance and social (ESG) performance. From mitigating business impact on climate change to the implementation of long-term sustainable growth strategies, responsible investors have the opportunity to play a pivotal role in shaping corporate policy.
Rather than the regular interactions between investors and senior management in companies focusing merely on financial performance indicators, topics of particular concern to responsible investors could be raised. But to accomplish that, the first step is for investors to realise their collective power.
Secondly, they would need to use this knowledge to join forces and identify where they can be most influential in their corporate engagement. Investors can work together through the PRI’s collaborative platform, known as the Clearinghouse, engaging by company, issue, region or asset class. For example, the PRI’s coordinated engagement on managing risks in hydraulic fracturing, includes 41 institutional investors with a total AUM of $5.1tn. Current topics include executive remuneration, corruption, water quality and scarcity and supply chain risk.
The recent visit by a group of responsible investors to textile factories in Bangladesh following the tragic collapse of the Rana Plaza complex in 2013 is an example of how they are trying to make a difference. The purpose of the site visit was to engage with the garment industry and local producers in order to improve working conditions in the textile industry. There is clearly a great deal of work left to do, however this shows how responsible investors can use their influence to facilitate better working conditions in developing countries while reducing the supply chain risks of fashion retailers.
It is worth noting that PRI signatories’ presence is not felt equally across all regions and sectors. It’s stronger in companies listed in the UK, continental Europe, the Middle East and Africa. This reflects the fact that, with few exceptions, European and South-African financial institutions have led the responsible investment movement. Conversely, PRI ownership lags in Australia, Asia Pacific, and particularly in the US and Canada. Although, North America is expanding. In 2014, 23 new US investors signed on to the PRI, including Harvard Management Company, which manages the university’s $32bn endowment fund.
The study reveals that the presence of PRI signatories reaches the highest levels of asset manager ownership in sectors facing some of the greatest sustainability challenges: mining, industry and utilities. For example, PRI signatories own an average of 49% of the shares held by asset managers in 58 industrial companies included in the study and an average of 50% asset manager ownership in 28 companies in the basic materials sector.
Across all sectors and countries, there is a growing desire among many investors to embed sustainability into their investment decision-making process. There is also the opportunity for company executives to implement long-term, value-driven strategies and for investor relations professionals to prioritise communication with their growing base of responsible investors. This will allow them to attract more long-term shareholders which will naturally result in lower stock price volatility.
The silent revolution has arrived. There is a mandate for change; the challenge for responsible investors, and the companies they own, is achieving the right pace for that change.
Will Martindale is policy and research manager for the United Nations-supported Principles for Responsible Investment and focuses on operationalising long-term investment. Miguel Santisteve is an Associate Director at NASDAQ OMX Advisory Services and focuses on Responsible Investment and ESG insights for investor relations

Wednesday, June 25, 2014

Peter MacKay: Pale, Male and Stale

Peter MacKay’s recently revealed Mother’s Day and Father’s Day greetings to his staff clearly demonstrate the extent of institutionalized gender stereotyping by decision makers in Canada.

Here’s what he had to say to mothers, “By the time many of you have arrived at the office in the morning, you’ve already changed diapers, packed lunches, run after school buses, dropped kids off at daycare, taken care of an aging loved one and maybe even thought about dinner.”

And fathers? “I wish to take this opportunity to recognize our colleagues who are not only dedicated Department of Justice employees, but are also dedicated fathers, shaping the minds and futures of the next generation of leaders.”

(Read the full text of both messages here.)       

Gender diversity on boards and in the C suite is an important issue for socially responsible investors. We have been working tirelessly, engaging management and sometimes bringing resolutions in an attempt to increase the number of women on corporate boards, and in senior management, in Canada.

In an article discussing Britain’s efforts to get more women on Boards, Jacey Graham, co-author of The Female FTSE Board Report 2014, comments on equality, ‘It will not be easy, for while there is a "lot less outright sexism, there's still a huge amount of unconscious bias".’
The idea that systemic biases exist, or that there is an ’old boys network’ that prevents women from moving onto boards is frequently dismissed. However humiliating this most recent episode is for Mr. MacKay, he has added immeasurably to the debate by bringing this latent sexism into the open.
Often, when quotas or results based legislation is discussed, the response is either that there are not enough qualified women available, or that we are moving in the right direction and it is only a matter of time before we achieve gender parity.

A Globe and Mail editorial discussing the OSC ‘s new rules on board diversity lauds the voluntary guidelines stating “unlike quotas, it’s a reasonable step”. However, that purported reasonableness is undercut by the fact that “Women make up just 12 per cent of directors on the boards of major publicly traded companies in Canada, a number that has climbed painfully slowly from about 9 per cent a decade ago.“

Discussing gender quotas, The Economist suggests they are becoming more popular due to both the “glacial pace of voluntary change” and that Norway’s quota law (requiring 40% of directors be women)  “has not been the disaster some predicted.”  

“The average number of women on Canadian boards is about 14 percent, which reflects a complete failure to draw on the deep female talent pool that is out there.” Peter Dey, Canadian Director as quoted in Women on Boards: A Conversation with Male Directors.

Quotas. It’s time.

Tuesday, June 17, 2014

SRI fundcos take active ownership role

Mutual funds with a responsible investment mandate are taking an active ownership role, opposing management resolutions far more often than non-RI fund groups, and supporting ESG shareholder resolutions. That’s the conclusion of the Canadian Mutual Fund Proxy Voting Survey, released this week by the Responsible Investment Association

The survey covers the 2013 proxy voting season, examining the voting patterns of 25 Canadian mutual fund families.

The three SRI-branded fund families (NEI, Meritas and Inhance) voted against compensation-related (say on pay) resolutions put forward by management 92% of the time at Canadian companies and 97% at U.S. companies, compared to 13% at both Canadian and U.S. companies by their mainstream counterparts.

On resolutions concerning executive stock incentive compensation plans, the RI funds voted against management 84% of the time, as opposed to 26% of the time by mainstream funds.

The RI fund groups were also more likely to support climate-related shareholder resolutions, voting in their favour 92% of the time versus 39% by non-RI fund groups.

"Voting against management recommendations is of course not limited to the RI funds -- a number of the non-RI fund groups surveyed supported multiple ESG issues and appear to be ready to take a long-term view," the study says.

Along with NEI, Meritas and Inhance, Desjardins, PH&N and CIBC were highlighted as  being the most critical of the status quo and most vigilant with their proxy voting.

Overall, the survey found that Canadian mutual funds side with management on the vast majority of resolutions brought to vote at TSX companies -- around 95% of the time, in most cases. In contrast, the three RI-branded funds voted with management on their resolutions only 56% of the time, and virtually none of the time in the case of "say on pay" resolutions.

"Not all mutual funds accept the status quo," the study concludes. "There are a handful of fund families, specifically those with an orientation towards responsible investment, who take a more active stance in challenging management recommendations. They tend to oppose more management-sponsored resolutions and support more ESG-related shareholder resolutions than their mainstream counterparts."