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ESG roundup: Stewardship is 'improving investment decisions'

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Asset manager and asset owner engagement with UK companies is having a positive effect on investment decisions and ultimately value, according to a new report.

The report is a joint effort of the Investment Association (IA) and the Pensions and Lifetime Savings Association (PLSA), who previously issued reports separately about stewardship by their respective constituencies.

It was based on two questionnaires, one for asset managers and service providers, and one for asset owners. The trade bodies’ inquiries found that “the investment chain is working as intended”, they said in a statement.

“Asset managers, which tend to engage and vote in-house, are maintaining high standards of stewardship,” they said. “While most asset owners outsource their stewardship activities, a substantial core are integrating it into their investment practices and 68% now include a stewardship policy in their Statement of Investment Principles.”

For those respondents that conduct stewardship in-house, almost two-thirds reported that engagement with UK companies resulted in somewhat or considerably better investment decisions.

The task of engaging fell mainly to portfolio managers as opposed to dedicated stewardship specialists, for those keeping the capability in-house. This demonstrated that stewardship was being integrated into the wider investment process, according to the IA and the PLSA. 

Emerging markets join the sustainability drive

Emerging market regulators have decided to establish a Task Force on Sustainable Finance.

The decision was taken at an International Organization of Securities Commissions (IOSCO) meeting in Sri Lanka this week, during which emerging market regulators agreed to the development of sustainable finance.

The regulators form IOSCO’s Growth and Emerging Markets committee and include representatives from dozens of emerging markets, including Brazil, Russia, India and China.

Moody’s formalises climate change dialogue with investors

Moody’s Investors Service has joined the Institutional Investors Group on Climate Change (IIGCC), the first credit rating agency to do so.

It has become an associate member, a new category of membership created for financial services providers that are neither asset managers nor asset owners.

The move comes at a time of heightened debate and scrutiny about the role of credit rating agencies in preventing or enabling the integration of environmental, social or governance (ESG) considerations in finance.

The UN Principles for Responsible Investment, for example, has been running an initiative aimed at exploring how ESG factors can be systematically included in credit risk analysis. The High Level Expert Group on sustainable finance, an advisory body to the EU, has recommended that rating agencies disclose how their credit ratings’ will take into account information provided in accordance with the recommendations of FSB Task Force on Climate-related Financial Disclosures.

Stephanie Pfeifer, CEO of IIGCC, said Moody’s membership “sends a powerful message to a segment of the financial sector that has valuable research and insight to contribute to our work and activities”.

Anke Richter, associate managing director of Moody’s corporate finance group, said: “Moody’s is committed to enhancing the systematic and transparent consideration of environmental, social and governance factors in our assessment of creditworthiness.”

She said joining the IIGCC underlined the importance the rating agency places on dialogue with investors as well as issuers.

Corporate SDG action in the spotlight

A consultation has been launched on an idea to create an alliance that would develop free, publicly available corporate sustainability benchmarks aligned with the UN Sustainable Development Goals (SDGs) as a means of triggering a “race to the top” in corporate behaviour.

Aviva, the Index Initiative, the UN Foundation and the Business and Sustainable Development Commission have proposed to establish the World Benchmarking Alliance (WBA), which would develop, fund, house and safeguard the corporate sustainability benchmarks.

The UK, Danish and Dutch governments have committed funding to the consultation phase, in addition to funding and support from Aviva.

The consultation’s announcement coincided with the UN Global Compact Leaders Summit on the margins of the 72nd session of the UN General Assembly in “Global Goals Week”.

Speaking at the summit in New York today, Mark Wilson, Aviva’s chief executive officer, said: “Our idea is simple. We turn the SDGs into a corporate competitive sport. We draw up transparent data on performance towards meeting the SDGs, and we rank companies according to how well they are doing.

“This will motivate a race to the top and is what the proposed World Benchmarking Alliance is all about.”

The consultation will run over the next nine months.

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