ESG roundup: Aviva Investors, Vedanta, Wonga, Church of England
GLOBAL – London-listed, Indian mining company Vedanta appears to lack a sufficient level of commitment to sustainability from its board, according to Aviva Investors, a minority shareholder in the company.
The asset manager also says that while the company continues to make progress in implementing its sustainability framework, the process is taking longer than expected.
Since the beginning of 2010, Vedanta's share price has underperformed its FTSE All-Share Mining peers by 29%.
Aviva Investors believes a significant proportion of this can be attributed to a lack of focus on sustainability issues.
Stephanie Maier, head of corporate responsibility, said: "We are pleased to note that progress continues to be made within Vedanta in building a framework to manage sustainability issues.
"This has, however, been slower than expected and suggests a lack of appropriate focus by the board."
He also pointed out that the company had yet to commit to the UN Voluntary Principles on Security and Human Rights.
"There is more to be done to comprehensively embed sustainability management within the culture of the company and translate this into action on the ground.
"This cultural change needs to be driven by the board, and an appropriately skilled and experience board is therefore crucial.
"We do not believe the non-executive directors are providing sufficiently robust independent challenges to the board.
"In particular, we are disappointed to find another director appointed without a credible track record in mining or sustainability issues."
Aviva Investors began to engage with the company in 2010, raising concerns regarding its performance on a range of business-relevant environmental and human rights issues.
The specific concern was breaches of the OECD Guidelines for Multinational Enterprises in respect to engagement with the Dongria Kondh community in Orissa, India, where Vedanta was planning to build a Bauxite mine.
This year, Aviva Investors commissioned a fourth report from independent research provider EIRIS evaluating performance against the seven recommendations to strengthen the governance of sustainability issues within Vedanta.
Further progress has been made in putting in place a framework to manage sustainability issues, and the remaining recommendations concerning board responsibility and training and establishing grievance mechanisms have now been met at a basic level.
Protests are expected at Vedanta's AGM in London today.
In other news, following the revelation that the Church of England's pension fund had indirect exposure to controversial payday loan company Wonga after the head of the Church of England and Archbishop of Canterbury Justin Welby vowed to put the firm out of business, several investors commented.
Chris Washington-Sare of institutional investment analysts Camradata said: "A strong governance reporting framework, coupled with robust responsible investment analysis, can enable pension funds and other institutional investors to manage their risk more effectively.
"Governance reporting can also help avoid the kind of reputational harm we have seen, which ethically driven organisations such as the Church of England and charities can be particularly exposed to.
"Such screening processes are not a 'nice to have' – they are part of good fiduciary diligence."
Mike Clark, director of responsible investment at Russell Investments, added: "There is a growing recognition of the true timescale of asset owners, representing millions of individual savers.
"It is often longer than the time horizon typical in the asset management community.
"Whatever your personal view on climate change, are you sure as a fiduciary you can ignore the risks to some assets in your portfolio from a realistic global price for carbon, from long-term energy costs, from water security and the related regulatory regimes which may be introduced?
"Many investors today would answer 'No, of course we can't ignore those risks'. So, responsible investment won't go away.
"For some investors, it means applying their own values when they build their portfolios, as Justin Welby plans to do. But for a much larger group of investors, it means identifying and managing risks, often long term in nature, to create sustainable financial value."
And Ian Cormican, partner at Sackers, a UK pensions law firm, said: "The church is caught between a rock and a hard place. A pension trustee's primary role is to invest in the best financial interests of members, with ethical issues generally a secondary consideration, although the two are not irreconcilable.
"The landmark Cowan v Scargill case suggested the trustees' primary role in investing should be to maximise the assets of the pension fund. This reflects a trustee's duty to ensure members' benefits can be paid when they fall due.
"The Law Commission is investigating what it means to be a fiduciary and addressing to what extent can trustees consider ethical factors when taking investment decisions due to this current uncertainty. It will report in June 2014."