European Commission consults on ESG investing

The European Commission has launched a consultation to gain views on how asset managers and institutional investors could include environmental, social and governance factors when taking decisions.

The consultation follows up on one of the eight early recommendations delivered by the High-Level Expert Group on Sustainable Finance which published its interim report in July 2017. The group recommended that there should be better disclosure from financial institutions and companies on how sustainability is factored into decision-making.

The Commission added that this work formed part of its efforts to mobilise private capital towards green and sustainable investments to enable the transition to a low-carbon economy and shows the EU’s strong commitment to mitigating risks posed by climate change and environmental challenges.  The consultation, the Commission said, also underlined the EU’s commitment to the Paris Climate Agreement and the UN 2030 Agenda for Sustainable Development.

An Action Plan on sustainable finance is due to be adopted by the Commission in the first quarter of 2018. The public consultation is open until 28th January 2018.

UK report on growing the market for social impact investing published

The advisory group appointed by the government in 2016 to look at the barriers in the market for social impact investing believes that none are insurmountable and there is a real opportunity to
build on a history of social impact innovations in the UK.

The group defined social impact investing as an investment in the shares or loan capital of
companies and enterprises that not only measure and report their wider impact on society — but
also hold themselves accountable for delivering and increasing positive impact. The government appointed the advisory group because it is believed there is a strong demand by investors to put their money into organisations with a social benefit but the opportunities to do so are not meeting this demand. To improve the social impact investment market the group set out recommendations in five areas:

  1.  Improve deal flow and the ability to invest at scale – which includes traditional companies demonstrating they are improving their social impact. The group said that more consistent outcome reporting by firms linked to UN Sustainable Development Goals (SDGs) would
    improve investor understanding and help boost confidence in the strategic relevance of non-financial measures over time.
  2. Strengthen competence and confidence within the financial services industry – the regulators, the financial services industry itself and their professional bodies should all be working to create knowledge and understanding of social impact.
  3. Develop better reporting of non-financial outcomes – the advisory groups said that the financial services industry should work with the Investment Association (IA)
    and CFA Society UK to develop consistent good practice and set common standards for social
    impact investing.
  4. Make it easier for people to invest – the government, financial services industry professional bodies, social sector and regulators should work to educate individual investors, financial advisers and pension scheme trustees to improve their knowledge of social impact investing. Additionally, the group recommended that a cross-sector industry working group, led by the Investment Association, should coordinate the development of best practice initially around
    transparency for both ESG integrated funds and for social impact investment products.
  5. Maintain momentum and build cohesion across initiatives – to achieve this the group recommended a thought-leadership conference in 2018 and the launch of an award scheme to stimulate and celebrate progress in social impact investment.

US tech giant Apple demonstrating best practice in achieving responsible supply chains

US tech giant Apple is leading the way in achieving supply chains that have not involved exploiting human rights or been linked to possible human rights abuses according to two separate reports by pressure groups.

european commission consults esg

Mineral mining in the Democratic Republic of the Congo has been linked to corruption and exploitation

The rankings by US-based Enough examined 20 of the world’s largest consumer electronics and jewellery retail companies on their efforts to support a conflict-free minerals trade and ensure their products aren’t linked to a range of abuses in the Democratic Republic of Congo (DRC).

The analysis found that  Google, HP, Microsoft, and Intel were also ranked in the top five while Walmart, Sears, and Neiman Marcus are ranked worst. Enough said that the rankings clearly indicated that the consumer electronics industry as a whole was more advanced than the jewellery retail sector in corporate efforts to improve supply chain transparency and opportunities for conflict-free sourcing from Congo.

Meanwhile Amnesty International has released a report ranking cobalt industry giants including Apple, Samsung Electronics, Dell, Microsoft, BMW, Renault and Tesla on how much they have improved their cobalt sourcing practices since January 2016. This followed on from an earlier report published that year which showed how cobalt mined by children and adults in hazardous conditions in the DRC entered the supply chains of many of the world’s biggest brands.

Again Apple has led the way in responsible cobalt sourcing and was the first company to publish the names of its cobalt suppliers. Amnesty International said that Dell and HP had also improved, for example by introducing stronger policies to detect human rights abuses. However, the pressure group indicated Microsoft was lagging behind and was among the 26 companies that failed to disclose details of their suppliers, like the companies who smelt and refine the cobalt they use. This meant Microsoft was not in compliance with even the basic international standards, Amnesty said.

Separately the European Coalition for Corporate Justice has written an open letter to the European Commission calling on it to put forward an EU-wide legislative proposal that would create clearer obligations for parent companies to prevent adverse human rights impacts in their supply chains. The pressure group notes that a number of individual member states have introduced laws to tighten up corporate obligations in this area but the Commission needed to develop a level playing field across the EU. The group also want more action to develop an EU-wide process for individuals and communities to be able to seek redress for companies that have adversely impacted their lives.

CDP report: Investors need better information to help them combat deforestation

Up to US$941 billion of turnover in publicly listed companies is dependent on commodities linked to deforestation, including soy, palm oil, cattle and timber, according to research by CDP. The campaign group said that companies and investors are identifying risks associated with deforestation but there is a lack of corporate disclosure.

CDP’s research found that 87% of companies reporting to CDP identified risks from deforestation and nearly one third (32%) were already experiencing impacts on their business from those risks. However, in 2017, less than a quarter (23%) of the 838 companies approached by CDP on behalf of investors responded to the request for information.

This year CDP said, Brambles, L’Oreal, SCA, Tetra Pak, Unilever, and UPM-Kymmene achieved the top score and were named as pioneers in tackling deforestation as part of the CDP A List 2017. These companies taking early action – like Unilever, the only company to score As across all four forest-risk commodities – are showing that best-practice on deforestation can go hand-in-hand with long-term profitability, CDP said.

Norges Bank: Remove oil & gas from Norwegian government pension fund global index

Norges Bank has advised the Norwegian government to remove oil and gas stocks from the government pension fund global benchmark index. The bank said that this would make the government’s wealth less vulnerable to a permanent drop in oil and gas prices.

The letter from the bank said  Norway’s government is heavily exposed to the oil and gas sector because in addition to the investments by the fund it has a stake in Statoil which results in a total exposure to oil and gas equities for the government that is twice as large as would be the case in a broad global equity index.

Deputy Governor of Norges Bank Egil Matsen said: “This advice is based exclusively on financial arguments and analyses of the government’s total oil and gas exposure and does not reflect any particular view of future movements in oil and gas prices or the profitability or sustainability of the oil and gas sector.”

While the arguments for divestment from oil and gas were not given as environmental it was seen as a growing recognition of the risks of investing in a sector that involves burning fossil fuels and therefore causing global warming.

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