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ESG roundup: PGGM, Mercer, UKSIF

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EUROPE - Dutch pension fund service provider PGGM has developed a responsible investment policy specifically for its private equity investments.

The €125bn fiduciary manager intends to apply environmental, social, governance factors (ESG) to all its investment processes.

According to PGGM, private equity is an investment category offering investors a pre-eminent opportunity to stimulate sustainability because the distance between companies and investors in the asset class is relatively small and investments are generally long-term, between five and 10 years.

PGGM's initial aim is to ensure that, when considering investment options, all the private equity parties in which they invest take structural account of ESG factors.

Given that PGGM mainly invests in private equity indirectly, an important part of the new policy is to investigate what ESG policies private equity funds have in place and how they ensure compliance.

In all the phases of the investment process, PGGM plans to assess the level of ESG within each fund.

Moreover, PGGM particularly wants to encourage companies and funds to look beyond the impact of local legislation and reputational risks on their ESG policies.

PGGM expects companies to strive for operational efficiency, which will, for example, reduce the volume of waste and energy consumption.

In this way, companies will improve both the environment and their own return.

In addition, PGGM intends to encourage private equity parties and companies to work on innovative and sustainable products and services, whereby both economic growth and societal progress are central.

The policy can be found here.

In other news, consultancy Mercer has said that increased shareholder activism and a desire for more corporate governance are driving changes in multi-national executive remuneration.

It has identified it as the single biggest executive remuneration trend in 2012.

According to the consultancy, pressure from shareholders is creating a domino effect, pushing regulators and legislators into faster and deeper involvement in executive remuneration issues.

Mark Hoble, partner in Mercer's executive rewards team in the UK, said: "Today, the speed of public comment and reaction means that company pay policies, which were defined according to criteria which may have been valid a year - or even months - before, might now attract intense public scrutiny and criticism.

"Legislators and companies are being forced to improve their responsiveness. As part of this response, performance remains a priority focus and is being tied ever closer to all elements of reward as part of this response."

However, Hoble also pointed out that context had also risen up on the agenda.

"Companies are considering the appropriateness of their historic pay decisions through the lenses of current public perception and economic performance," he said.

"We are seeing companies undertake scenario-modelling for their planned pay policies. This is an essential and sensible part of corporate risk and reputation management."

The 2011 introduction of the US say-on-pay rules have encouraged greater transparency and shareholder communication, he said.

They have also accelerated further long-term incentive (LTI) plan design with performance-based vesting conditions.

There is increased scrutiny of LTIs' conditions while compensation committees, noting current sentiment, are showing restraint on awards.

In 2012-13, the Dodd-Frank Act, containing rules on how to address pay for performance, remuneration and internal pay equity, will come into force.
 
Gregg Passin, partner Mercer's executive rewards team in the US, said: "Various parts of the Act came into force in 2011, but the impact of the remaining areas is uncertain, so many companies are hedging their bets and will respond in more detail once the SEC confirms the rules.

"Meanwhile, investor groups continue to exert a strong influence on pay discussions, but, with around 98% of US companies having passed their say-on-pay votes in 2011 and 2012, it is fair to say progress is being made."

Lastly, the UK Sustainable Investment and Finance Association (UKSIF) has joined more than 50 companies, industry bodies and NGOs in signing a letter - convened by the Aldersgate Group - which calls on the UK chancellor of the exchequer George Osborne to set a 2030 carbon intensity target for the power sector.

The signatories' call supports the recommendation by the House of Commons Select Committee on Energy and Climate Change that the target should be set in secondary legislation, with a reference to this in the next draft of the Energy Bill.

The letter cites cross-party consensus four years ago in delivering the Climate Change Act as an example of positive action on the low-carbon transition, and highlights the Committee on Climate Change's recent warnings to the government that uncertainty is damaging investment.

The letter states: "The UK's economic growth, competitive advantage and the health of our job market will increasingly be determined by our response to climate change, energy security and commodity price volatility.

"Failure to act at sufficient scale and pace will undermine our prosperity and cause us to miss out on the huge commercial opportunities associated with the global shift to a low carbon, resource efficient economy."

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