Australian and Global ESG Update as at 23 April 2019

Australian and New Zealand ESG Updates

CSIRO invites public discussion on AI ethics

Australia’s national science agency, CSIRO’s Data61, has published a discussion paper, Artificial Intelligence: Australia’s Ethics Framework, to encourage conversation on how Australia develops and uses artificial intelligence (AI).

The discussion paper looks at governance principles and measures for best possible results from AI, while maintaining our well-being. The results of the discussion will help provide the Government with the information that will guide their approach to AI ethics.

Read the full discussion paper. Submissions close 31 May 2019.

Australians top ‘most responsible asset allocator’ list

AustralianSuper and Victoria Funds Management Corporation have come in the top 25 world’s most responsible asset allocators, says a new report.

The US public policy think tank, New America’s Responsible Asset Allocator Initiative (RAAI), in partnership with the Fletcher School at Tufts University, analysed and ranked around 200 sovereign wealth funds and public pension funds against 10 core principles and 20 criteria for responsible investing practices.

The two Australian funds ranked within the top quintile of analysed funds, with other named finalists being Commonwealth Superannuation Corporation, HESTA, QIC and QSuper.

So what makes a winner and not just a finalist?

Apparently not much, said New America, with the top 25 averaging 96 points from a possible 100, while finalists had an average of 89 points. The last report had AustralianSuper and VFMC finalists too, however they’ve managed to jump into the outranking top 25.

See who got into the top 25 with the original report from RAAI

NZ Super divests weapons

The New Zealand Super Fund has divested all companies involved in the manufacturing of automatic and semi-automatic weapons. All newly-prohibited weapons or parts were removed from the $41 billion fund, with $19 million in investments sold on.

Guardians of New Zealand Superannuation - the crown entity that manages the fund - was a reflection of the passing of the amended bill that passed New Zealand parliament recently with a 119 to one vote. The Guardians’ Responsible Investment Framework requires New Zealand law to be considered.

State Street calls for Australian board annual elections for all directors

State Street wants a debate on board accountability in Australia, calling for annual elections for all directors. Rakhi Kumar, head of ESG investments and asset stewardship at State Street Global Advisors, says the Australian market is overdue for the conversation.

The idea is that if a director is up for election each year, they will be more responsive to shareholder concerns. This increases director accountability. The system is currently that a third of directors go up for election each year. In the US, 50 per cent of companies have annual elections, and in the UK there are annual board elections. Objections include that this encourages short-termism.

Kumar said: ‘If a board will not engage with us over board diversity we vote against the chair. In Australia it is more difficult because the chair may not be up for election, nor anyone from the nominations committee. No matter how dissatisfied shareholders are with director performance, they have to wait several years to hold the appropriate board members accountable.’

Global ESG Updates

Norway restricts coal investments while opening up renewables

Norway is set to increase restrictions on coal investments for its $1 trillion sovereign wealth fund, meanwhile opening it up for renewable energy infrastructure assets. The coal ban is being extended with absolute caps on thermal coal production and its use in power generation, picking on big companies that were left out of the 2015 restrictions.

The proposed restrictions do allow for companies that base more than 30 per cent of their revenue or activities on coal, with limits of 20 million tons of coal for miners and 10,000 megawatts for power capacity.

The current regulations allow the fund to stay invested in these rule-breaching companies, so long as the company had plans to make it compliant later on. Sixty-nine companies have already been excluded.

The government has proposed a two per cent cap of the fund for renewable energy infrastructure, suggesting it would start in developed markets. It may double the upper limit on environment-related mandates.

Norway’s wealth has been built on oil and gas production, being western Europe’s largest petroleum producer. Diversification in holdings in this market is reducing overall exposure of the fund to the risk of lower crude oil prices.

$1bn green infrastructure investment boost in Southeast Asia

A group has launched a loan and technical assistance facility to mobilise over $1 billion for green infrastructure investments throughout Southeast Asia.

The Association of Southeast Asian Nations (ASEAN), the Asian Development Bank (ADB), and major financiers created the ASEAN Catalytic Green Finance Facility to support and develop climate-friendly, green infrastructure projects.

Exxon shareholders not allowed to vote on climate resolution

Shareholders in Exxon Mobil Corp are not able to vote on setting greenhouse gas targets, ruled the US Securities and Exchange Commission (SEC). This is what the company wanted, after requesting that the SEC bar a shareholder submission that would see the company setting emissions targets in line with greenhouse gas reduction goals set by the Paris Climate Agreement.

Exxon said that the resolution was misleading, and was an attempt to interfere with its management responsibilities. The SEC agreed, saying that the proposal would micromanage the company by imposing specific methods of implementing complex policies in place of the ongoing judgements of management.

Investors are considering their next steps.

Socially responsible investments hit US$30 trillion

Globally, sustainability assets have increased 34 per cent over two years to hit US$30.7 trillion. Japanese pension funds and investor demand are boosting investments as climate change fears increase.

The only market share that sustainable investments did not increase in was Europe, with New Zealand, Australia and Japan leading the way. Europe remains the largest region for sustainable investors, with around US$12.3 trillion allocated to sustainable strategies there, however Europe is losing market share.

The bar is lifting in terms of how a sustainable investment is defined, to avoid ‘greenwashing’. A common set of definitions is required so we know we’re all talking about the same thing and collecting common data. A negative screen is not enough to qualify as a responsible investor.

In Australia, responsible investment accounted for $866 billion in 2018, up a whopping 37 per cent in 2016.