Montreal Carbon Pledge Attracts Large Institutional Investors

A group of large institutional investors have signed on to the Montreal Carbon Pledge, agreeing to measure and publicly disclose the carbon footprint of their investment portfolios on an annual basis.

Overseen by the UN-backed Principles for Responsible Investment, the pledge hopes to attract $3 trillion of portfolio in time for next year’s UN climate change conference.

"We are proud to launch the Montreal Carbon Pledge, a commitment by investors to translate climate talk into walk," said Fiona Reynolds, Managing Director of the Principles for Responsible Investment. "The first step to managing the long-term investment risks associated with climate change and carbon regulation is to measure them, and this initiative sets a clear path forward."

Carbon footprinting enables investors to quantify the carbon content of a portfolio, the PRI said, noting that 78% of the largest 500 publicly listed companies now report their carbon emissions.

Eight funds are inaugural participants in the Montreal pledge, including the $298 billion California Public Employees’ Retirement System and France’s public sector pension plan known as ERAFP. The only Canadian fund to commit so far is Montreal-based Bâtirente, which manages $1.2 billion in assets.

Batirente chief executive officer Daniel Simard said the pledge is the next step in the fund’s commitment to socially responsible investing.

“We think we must move to a new stage in responsible investment, and that is about capital allocation,” he said in an interview with the Globe & Mail. “For us, measuring our footprint means considering reducing our carbon footprint. So we will need to see how we can rethink our asset management in these terms.”

Toby Heaps of Corporate Knights told the Globe a number of Canadian investors have been reviewing the pledge and may sign on, including the Canada Pension Plan Investment Board, which said it is assessing the new initiative.

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

http://www.theguardian.com/sustainable-business/2014/aug/22/responsible-investors-unpri-listed-companies-survey#start-of-comments

 

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