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New blueprint for UN Principles for Responsible Investment, activist shareholders gain ground, internal carbon pricing rises
ALMOST NINE in 10 (89%) of middle managers don’t have a good grasp of what the Sustainable Development Goals (SDGs) are or why they are important, business leaders say. According to a new report commissioned by business membership group CSR Europe, heightened awareness of the United Nations’ flagship sustainable development campaign is largely limited to senior management. Even then only about half (53%) of executives give any meaningful attention to the SDGs.
Officially launched in January 2016, the SDGs set 17 targets for conservation, anti-poverty, sanitation for all and other core development themes. Getting in the way of greater business engagement are three main barriers: low social awareness and stakeholder interest (cited by 51% of the 160 senior European business leaders surveyed), lack of clarity on implementation (37%) and weak government commitment (36%). The engagement level of business leaders varies widely across the 17 goals as well. Promoting decent work and economic growth tops the agenda for the private sector, followed by wellbeing for all, responsible consumption and mitigating climate change. The lowest priorities are the provision of water and sanitation for all, reduction of global inequalities and conservation of the world’s oceans.
The relative lack of business interest comes despite a recent report by World Economic Forum-backed Business and Sustainable Development Commission that finds meeting the SDGs could unlock $12tr in new market opportunities. With that thought in mind, the World Bank issued a sustainable development bond back in March to finance business ventures linked to the SDGs. The 15-year equity-index bond raised €106.8m from institutional investors in Italy and France. The return on investment is linked to the stock performance of the 50 development-minded companies listed on the Solactive Sustainable Development Goals World Index. Around $100bn is invested in products linked to indices calculated by Germany-based Solactive.
A new report by CSR Asia, co-funded by anti-poverty charity Oxfam, looks specifically at the role agribusiness sector can play in delivering on the SDGs in Asia. Agriculture, fisheries, forestry, food processing and food-related services are a major contributor to gross domestic product in the region. For instance, agribusiness makes up 29.8% of GDP in Myanmar and almost one third (30.6%) of exports. It is also a major employer, providing jobs for over half (54.9%) of the population in Cambodia, and almost half in Vietnam (47.9%). Agribusiness is also a key area for trade revenues, with the region providing about 50% of the world’s import needs of rice and about 70% of all rubber exports. Investing in smallholder farmers, who provide up to 80% of food supply in Asia, will increase food security and decrease poverty, the report maintains.
PRI, RenewablesUK and Forum on Forests chart new strategies
MORE THAN 2,000 studies have been carried out since 1970 into the link between companies’ environmental, social and governance (ESG) performance and their bottom lines. Of these, nearly two-thirds (63%) have found a positive correlation, while only 10% have identified a negative relationship. It is with this research in mind that the United Nations-backed Principles for Responsible Investment (PRI) initiative is launching a new 10-year blueprint for responsible investment. PRI was launched in 2006 and counts more than 1,400 institutional investors and asset managers among its signatories. Of these, over 200 report regularly engaging with investee companies concerning non-financial risks, up from 40 back in 2007.
Energy companies are the subject of the most engagements by investors (22%). The other most targeted companies are in the industrial (16%), consumer (13%) and financial (12%) sectors. Investors appear most concerned about governance issues (35%), followed by environment (29%) and social (16%) issues. More than one quarter (29%) of investor engagements involve all three factors. Promoting transparency forms an important part of the PRI initiative. Worldwide, there are now more than 400 reporting standards for climate and corporate sustainability performance. In the last decade, more than 13,000 companies have issued reports on one or both of these areas. Over 1,000 investors, meanwhile, have reported on progress in implementing the PRI’s six main objectives, which relate to active and responsible asset management.
Another sustainability initiative to have laid out a new strategic plan is RenewableUK, the industry body for non-solar renewable energy firms in the UK. The group’s Powering Britain report says the sector will invest more than £15.6bn in UK infrastructure between 2016 and 2021 to boost capacity and production. More than 1,000 firms in the UK currently work in the wind, wave and tidal energy sector. They provide enough electricity to power the equivalent of 9.75m homes, while reducing C02 emissions by 16.7m tonnes per year.
Meanwhile, the United Nation’s Forum on Forests has also laid out a new vision. The UN Strategic Plan for Forests makes the point that forests cover 30% of the Earth’s land area, equivalent to nearly 4 billion hectares. An estimated 1.6 billion people, 25% of the global population, depend on forests for subsistence, livelihood, employment and income-generation. In addition, forests are home to an estimated 80% of all terrestrial species. The plan, which extends through to 2030, commits to create a world where “all types of forests and trees outside forests are sustainably managed, contribute to sustainable development and provide economic, social, environmental and cultural benefits for present and future generations”. Among the specific targets are a 3% increase in net forest area by 2030 (equivalent to 120 million hectares, or an area over twice the size of France) and the eradication of poverty among forest-dependent people.
Activist shareholders gain ground in US battles
PROXY SEASON is upon us. And at last stockholders are finding their collective voice. After years of trying, owners of shares in $46bn-US oil firm Occidental Petroleum succeeded in overcoming board objections to proposals that the company report on the business impact of climate change. The proposal passed after it gained support from Occidental’s largest shareholder, $5.4tr asset manager BlackRock. US oil and gas major Exxon will now undertake to do the same, following a successful proposal to report annually on the business impacts of climate change last week. The resolution gained 62.3% of shareholder votes, up from 38.1% when the same proposal was made last year. PPL, a large US utility company, is set to follow suit as well after a shareholder proposal was successfully passed. Similar proposals by the shareholders of BP and Royal Dutch Shell passed in 2015. However, activist shareholders at the latter had less success this year persuading BP’s board to set company-wide emissions targets in line with the Paris climate agreement.
A recent study commissioned by US law firm Schulte Roth & Zabel into activist funds with assets under management of $153bn found that nearly half of institutional investors (46%) and more than one-third (37%) of sell-side analysts have become “significantly more accepting” of activist investors. Activism is strongest in the US, with 33% of activists saying there is “a lot of opportunity” and 64% saying there is “some opportunity” for activism. The split in Europe is closer to 26% and 48%, respectively. Asia is the slow coach, meanwhile, with 38% of activists seeing “little opportunity” to engage Asian-listed firms. According to a separate report by Schulte Roth & Zabel, 758 companies worldwide received public demands in 2016. This includes 104 firms listed in S&P 500 and eight in FTSE 100. The 2016 figure marks a 13% increase on 2015. Not all these demands were successful, however. Only 58% of resolved demands initiated in 2016 met with a positive or partially positive response. The rate in 2014 and 2015 was closer to 53%. Another emerging trend appears to be the shift away from targeting large stocks. In 2016 nearly eight in 10 (78%) of all targeted companies had a market capitalisation of less than $2bn, up from 72% in 2015 and 70% in 2014.
Shareholder activism is benefitting from a combination of factors: increased competition in the activist sector, fewer attractive targets, increased engagement by institutional investors and some poor returns. Fossil fuel stocks have been hit hard over recent years as falling global prices and climate change risks begin to give investors the jitters. Bloomberg Intelligence's index of coal companies, for instance, has lost almost 80% of its value over the last five years. BI’s agriculture-based index, in contrast, has risen by about 29% over the same period. Over-supply of crude oil has caused global prices to fall, rendering the energy sector the worst-performing group of the US-based S&P 500 so far this year. The sector’s stock performance has seen a drop of about 11% so far this year. Fears over climate change legislation have led some investors to fear that fossil-fuel firms may not be able to exploit proven reserves in the future, leaving them with so-called stranded assets. Earlier this year, the International Energy Agency warned oil and gas companies that failing to adapt to the lower carbon energy agenda could see the abandonment of $1.3bn worth of assets over the next three decades.
Internal carbon pricing up by nearly quarter
THE NUMBER of companies embedding an internal carbon price into their business strategies has increased by 23% in the last financial year, according to a new report by the investor-backed transparency group CDP. The report pays particular attention to the power sector, which is responsible for one quarter of global carbon emissions. Power companies currently use an average carbon price of $35 per tonne. This is at the bottom of the $30-$100/tonne range estimate that experts believe will be necessary by 2030 if global warming is to be limited to 2°C. Although investors do not think governments will impose explicit prices in the short term, the influential We Mean Business coalition and Carbon Pricing Leadership Coalition both argue that power companies should start taking account of carbon prices in capex decisions that are being made now.
Climate advocates are reporting an increase in science-based targets, too. In the last two months, 55 large corporations have joined the business-led Science-Based Targets initiative. Signatories all commit to reduce greenhouse gas emissions at a rate consistent with keeping global temperature increase below 2°C compared to pre-industrial temperatures. The new entrants include Fujitsu, Ericsson, SAP and Telefónica. In total, the initiative now counts 269 corporate members. The list includes IT giant Hewlett Packard, which requested that all its manufacturing suppliers set their own science-based emissions reduction targets by 2025. HP’s goal is to cut 100 million tonnes of emissions, equivalent to taking 21 million cars off the road for an entire year. WalMart, meanwhile, reports a saving of nearly $1bn in the last fiscal year as a result of emission-reductions measures. The US firm was the first retailer to establish a verified science-based target emissions-reduction plan. Since 2005, it has avoided emitting almost 650,000 metric tonnes of carbon dioxide-equivalent by doubling the efficiency of its US fleet.
SDGs renewables UN Business and Sustainable Development Commission Principles for Responsible Investment Activists climate change fossil fuels coal carbon Ericsson Fujitsu SAP Telefonica HP