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Impact Investing

IPE special report May 2018

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ESG roundup: Camradata, AXA IM, UKSIF, IEA

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  • ESG roundup: Camradata, AXA IM, UKSIF, IEA

GLOBAL – Environmental, social and governance (ESG) analysis will be fully integrated into investment management by 2020, according to asset managers and investment specialists that took part in a Camradata roundtable this morning.

While there were differences of opinion on what the mainstream would look like, there was broad acknowledgement that, currently, not enough time is given to ESG evaluation, with many themes of sustainability taking decades to become meaningful.

Roundtable participants suggested ESG metrics should be used not only for risk analysis but also to better identify investment opportunities.

No longer should responsible investors be cast as the Cassandras of the investment world but more as innovative return seekers.

The panel also observed that incorporating ESG into everyday analysis, along with other meaningful factors such as stock-price evaluation, is extremely complex and requires asset managers to be more, not less, skilled.

The roundtable was staged following the UK government's announcement that it would mandate all companies listed on the London Stock Exchange to report their greenhouse gas emissions from April 2013.

Additionally, the Association of British Insurers' guidelines to institutional investors have been updated to require that a company's annual report should include information on ESG-related risks that may impact on the future of the business.

Earlier this month, Camradata's latest product review called 'Clean Energy and Climate Change' suggested benefits of responsible investing have not been made clear enough to institutional investors.

The review can be found here.

In other news, the Italian government has said it will write to the country's 100 largest companies and cities to request that they disclose their climate change impacts, mitigation strategies, greenhouse gas emissions and their actions to reduce them as part of the CDP climate change programme.

In doing so, it seeks to stimulate sustainable economic growth.

The Italian organisations will be asked to complete the same climate change questionnaire that the CDP already sends to more than 5,000 companies globally on behalf of 722 investors.

Elsewhere, research by Axa Investment Managers has revealed a mismatch between corporate ambitions and boardroom diversity.

The report, entitled 'Future-proofing company leadership: Diversity in EuroStoxx 50 companies', found that, although for more than half of the EuroStoxx 50 companies emerging markets account for at least 20% of their total revenues, just 5.6% of board directors in Europe's largest companies are emerging market nationals.

In fact, two-thirds of these boards are dominated by a single nationality, with three companies – BBVA (Spanish), H&M (Swedish) and ENI (Italian) – having a board comprised solely of one nationality.

Matt Christensen, head of responsible investment at Axa IM, said: "Corporate footprints are now global, but the boards of the companies we have analysed are, as yet, far from it.

"This raises a flag, particularly when it is estimated that emerging market economies will account for most of the 70m new consumers expected to enter the global middle class each year.

"With much of this future disposable income in the hands of women, it is important companies have the right skill sets in place at a board and executive level to succeed in these markets."

Analysis of the proportion of women across the EuroStoxx 50 revealed an hourglass effect.

Gender balance is high at the bottom of organisations where 35% of the workforce is women, decreasing when going up the hierarchy towards senior management where only 11% of executive committees are female, but increasing again at board level where women are represented by 18%.

Of the 50 companies, 13 had no female senior executive, and none had a female chief executive at the time of the report.

This lack of female senior managers might create a bottleneck for companies looking to attract women board directors in the future, according to Axa IM.  
 
Meanwhile, the UK Sustainable Investment and Finance Association (UKSIF) has welcomed the focus on the themes of social impact investing and tax, trade and transparency at this year's G8 summit, and urged attendees to use the event to make progress in breaking down barriers to long-term responsible investment.

As a member of the Corporate Sustainability Reporting Coalition (CSRC), UKSIF called for commitments by the leaders of the G8 to work towards ensuring better corporate sustainability reporting by all large companies in their countries.

Simon Howard, UKSIF chief executive, said: "Integrating long-term sustainability factors into companies' business strategies could help increase the quality and flow of information that lets investors make the informed and long-term decisions vital for the global economy, environment and society."

Steve Waygood, chief responsible investment officer at Aviva Investors, said: "Investors need to be able to differentiate between companies that conduct business in a sustainable and responsible manner and those that don't.

"Company boards that debate sustainability issues and disclose their performance in this area – for example, by integrating key performance indicators throughout the report and account – are more likely to succeed over time and better reward investors."

Lastly, European investors worth €7.5trn have called for climate change action following a report by the International Energy Agency (IEA) setting out measures to reduce emissions and limit temperature rises up to 2020, the year a new international agreement is due to come into force.

This includes a partial phase-out of $523bn (€391bn) in fossil fuel subsidies.

In 2012, energy-related carbon emissions increased by 1.4% to 31.6 gigatonnes, a historical high.

The measures outlined by the report, which it says are achievable at zero net cost, could reduce carbon emissions by 3.1 gigatonnes up to 2020 and keep a two-degree temperature-rise target in sight.

The IEA report can be found here.

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