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ESG roundup: German gender quota, governance risk, proxy voting, green bonds

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  • Frankfurt, Germany

Germany’s coalition government has agreed to introduce a gender quota of 30% on the supervisory boards of publicly listed companies in the country.

Companies unable to appoint women to at least 30% of open board seats from 2016 will have to leave the seats vacant.

Large companies will also have to set their own targets on how to reach that quota from 2015.

According to the women-on-board index by lobbying group FidAR, women make up only 17.4% of board of directors (Aufsichtsräten) and 11.7% of executive posts in Germany.

The two main parties – Angela Merkel’s CDU and SPD – agreed on this as part of negotiations to form a coalition following September’s elections.

The European Commission has proposed that EU-listed companies with more than 250 workers should have 40% of women on their boards by 2020.

A progress report published by Cranfield School of Management in the UK meanwhile shows that women now account for 19% of FTSE 100 and 15% of FTSE 250 board positions. 

Since the Lord Davies report into women on boards was published in March 2011, the percentage of female appointments to FTSE boards has increased, although the pace of change has varied. 

In the last six months, 27% of FTSE 100 and 30% of FTSE 250 new appointments went to women.

In other news, governance research specialist PIRC and investment skill investment firm Inalytics have announced a new service for pension funds that assesses their portfolios for governance risk and investment skill.

The new collaborative service aims to provide pension funds with tools to examine their portfolios and find out whether they own companies that are high risk, while knowing if their managers have the investment ability to meet their performance targets.

A research paper by the firms reveals the marked impact of governance on performance.

Of the 423 portfolios analysed, firms ranked as high risk by PIRC underperformed the index by an average of 4.1% over a 23-month period.

The beneficial effect of good governance is much more potent – firms ranked as low risk by PIRC outperformed the index by 13.1% on average.

The research revealed that the relationship between governance and performance is felt particularly acutely for smaller companies.

Small low-risk firms outperform the index by 15%, medium risk by 8.5% and high-risk firms underperformed by 0.4%.

Meanwhile, environmental, social and governance (ESG) research provider EIRIS and corporate governance service provider Glass, Lewis & Co have launched a proxy voting service, enabling institutional investors to incorporate accountability for environmental and social performance into their voting for company directors.

The service will initially be based on 1,500 leading global companies.

Specifically, it will allow Glass Lewis’s proxy voting clients the option of directly linking their voting in director elections to reflect dissatisfaction with inadequate ESG reporting practices at a company

And lastly, Zurich Insurance Group aims to invest up to $1bn (€740m) into green bonds issued by the World Bank, International Finance Corporation (IFC) and other development institutions.

As of today, the commitment made by Zurich is the largest investment in green bonds globally and is a part of the company’s responsible investment strategy.

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