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ESG roundup: Future Fund, AODP, Green Investment Bank

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  • ESG roundup: Future Fund, AODP, Green Investment Bank

GLOBAL - Australia's largest pension fund is too "under-resourced" to consider climate change in its portfolio, according to the Asset Owners Disclosure Project (AODP).

Despite the development of Australia's own carbon-pricing scheme, its links with international ones and further developments in the low-carbon economy, the $75bn (€57.2bn) Future Fund sees no benefit in giving the issue further attention and providing stakeholders with clarity about its strategies to protect its portfolio.

In a letter to the AODP, the pension fund said it suffered "resource constraints".

AODP chair John Hewson said: "It is quite extraordinary that Australia's largest fund, which will have to supply pension liabilities over the long term, has decided not to come clean over its climate position.

"While investors all over the world continue to build understanding of how to protect themselves from the market and physical impacts of climate change, the Future Fund thinks it is immune. It needs to come clean."

AODP alleged that the former head of Future Fund David Murray was what was known as a "climate denier", someone who refuted the conclusions of the scientific community regarding climate change.

Hewson said: "This isn't about science, this is about risk, and thus the risks to the assets in the Future Fund portfolio.

"There are many ways in which we could see a rapid shift to the low-carbon economy in the coming years.

"Under any of those scenarios, we will see rapid direct or indirect re-pricing of carbon, and then the Future Fund will be unable to sell any stranded assets, and so it must start planning now. Australia's retirees cannot afford another sub-prime crisis."

AODP issued disclosure requests to the world's largest 1,000 asset owners in August and will publish its first global index of funds later this year. 

In other news, the European Commission has ruled that a £3bn (€3.7bn) public funding granted by the UK for the creation of a bank investing in environmentally friendly projects is in line with EU state aid rules.

The Green Investment Bank (GIB) will invest only in projects that could not obtain sufficient funding from the markets.

The set-up of the GIB is expected to further the UK's 2020 target in reducing carbon emissions and accelerating the development of a green economy.

The Commission said the GIB had put in place several safeguards to avoid the crowding out of private investment, and that the concept preserved a level playing field among competitors in the EU single market.

The GIB's mission is to invest in projects in innovative, environmentally friendly areas for which a market failure has been identified, such as offshore wind-power generation, waste infrastructures, non-domestic energy efficiency, biofuels, biomass, carbon capture and storage, marine energy and renewable heat generation.

It will be capitalised with £3bn and will intervene by syndicating and underwriting junior, mezzanine and senior debt, by taking equity stakes or granting guarantees.

Lastly, chairmen are better engaged on corporate governance, but still need to define more clearly the tone from the top, according to UK-based Grant Thornton's interim research of 242 FTSE 350 2011-12 annual reports.

The research noticed some improvements in governance reporting, but found that only 5% of chairmen go further in their primary statement and help set the tone from the top by discussing their company culture and the values they wish to instil in the business.

Three-quarters of chairmen do refer to their board's governance practices in either their primary statement or the governance report, although 44% do so only briefly and with less than one in four including any valuable insight into their company's governance practice.

A quarter of annual reports still contain no chairman comment on governance at all, in spite of recent high-profile governance scandals.

Simon Lowe, partner and chairman of the Grant Thornton Corporate Governance Institute, said: "In a crisis, businesses have to rely on the values that have been embedded throughout the business, rather than reaching for the manual.

"As such, articulating the company's values and thereby broadcasting their importance to all stakeholders should be actively encouraged.

"But no chairman - even the most passionate advocate of doing the right thing - can embed ethical principles and effective governance practices without support from the CEO and other senior figures, including the company secretary."

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