ESG Update as at 1 July 2019

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Australian and New Zealand ESG Updates

Future Super renewable energy investment app

Array is a new app that will allow Australians to invest in renewable energy, starting at $5 a day. The first two products to be made available through the app will be Future Super’s superannuation fund and its new investment option, the Future Renewables Fund, which invests in solar farms.

The fund invests in loans and debt securities, listed and unlisted equities, and cash. Investors are not charged any establishment, contribution, withdrawal or exit fees, but investors pay 0.99 per cent of their net asset value annually in management costs via a 0.86 per cent per annum management fee and indirect costs of 0.13 per cent per annum.

Big companies gearing up for slavery reporting

Australian institutional investors with over $100 million in annual revenue (or $50 million for those operating out of New South Wales) - or about 3,000 companies - will soon be collecting information for their first modern slavery reports. The reports require data collection from 1 July to check supply chains and investment portfolios for slavery, and must be presented in December 2020.

Companies must explain what steps they’ve taken to investigate slavery in the supply chain of goods and services, and what steps, if any, have been taken to correct any erroneous findings.

Mass slavery was supposed to have ended officially in 1865, however it has not, despite being illegal in most countries and hidden. There are an estimated 40 million people living in slave conditions, with most of these being women. Examples of slavery occurring now include human trafficking, slavery, servitude, forced marriage, forced labour, debt bondage, child labour, and deceptive recruitment.

The risks of slavery are highest in certain industries such as the apparel industry (sweatshops), property services (building cleaners) and the finance industry (outsourced information technology and call-centre functions). Mapping out supply chains is a costly, time-consuming affair, so it can be incorporated into other elements of human rights and ESG in information gathering processes.

There are no penalties for indirectly condoning slavery as an investee company or person, however this new Australian legislation asks more of companies in terms of reporting, compared to for example the United Kingdom’s guideline-only approach.

APRA’s Geoff Summerhayes talks climate risk

Executive director at the Australian Prudential Regulation Authority (APRA), Geoff Summerhayes, has given a speech at the International Insurance Society Global Insurance Forum in Singapore addressing the global debate about the financial impacts of climate change. Summerhayes warned that failing to take sufficient action now will cost us more in the future.

Summerhayes discussed what APRA is asking of Australian companies, in particular investment funds and finance companies, in terms of what preparations are occurring for the low carbon economy that is coming our way.

Summerhayes said: "APRA is embedding the assessment of climate risk into our ongoing supervisory activities. We intend to probe the entities we regulate on their risk identification, measurement and mitigation strategies. We expect to see continuous improvement in how entities are preparing for the transition to the low-carbon economy."

Read the full speech by Geoff Summerhayes, Buy Now or Pay Later

Rest now fully owns Collgar Wind Farm

Rest superannuation has bought from UBS the 60 per cent stake in Collgar Wind Farm that it didn’t already own. Collgar is one of Australia’s biggest renewable energy producers, generating on average 40-50 per cent of Western Australia’s renewable energy - that is, to displace 690,000 tonnes of carbon dioxide emissions per year.

Rest has been part of the wind farm’s ownership since it was built, and now has 100 per cent ownership.

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Global ESG Updates

Norwegian sovereign wealth fund end exclusions for Rio Tinto and friends

Exclusions on Rio Tinto from the Norwegian sovereign fund have been revoked, along with four other huge international companies - retail giant Walmart and Wal-mart de Mexico, fertiliser company Nutrien, global conglomerate Grupo Carso, and defence company General Dynamics.

The exclusion was made in 2008 and was based on a risk assessment of severe environmental damage relating to the Grasberg mine in Indonesia and its involvement with Freeport McMoRan Copper&Gold as a joint venture partner in the mine.

Norges Bank excluded Freeport McMoRan Copper&Gold in 2006 as it posed an unacceptable risk of contributing to severe environmental damage, with the mine expected to remain profitable until 2041. It is estimated that the Grasberg mine deposits 230,000 tonnes or more of tailings directly into a natural river system, with discharges increasing as the mine expands over time. The effects are likely to be lasting ground and water contamination.

  • Rio Tinto is now selling off its interest in the mine and has entered into an agreement to do so.

  • Grupo Carson was excluded in 2011 due to tobacco production that it is no longer involved in.

  • General dynamics was excluded in 2005 due to production of cluster munitions, however the company no longer manufactures these weapons.

  • Nutrien was excluded in 2011 after it was believed to be at risk of violating fundamental ethical norms as it operated in Western Sahara, with operations there having come to a close.

  • Walmart and Wal-mart de Mexico were excluded in 2006 due to serious or systemic human rights violations, with the grounds for this exclusion deemed to no longer be present.

It is not clear at this stage whether the Ministry of Finance will re-introduced the investments to the fund.

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ESG Research

Monash study delves into consumer ESG buying trends

More consumers than ever are prepared to pay more for products made from sustainable or recycled materials, reveals recent research from Monash University. Shoppers are more likely to buy from brands that align with their personal values, with a belief that their personal shopping habits have a significant impact on the world.

Lead researcher Dr Eloise Zoppos said there is a new sort of person - the 21st Century post-growth consumer. These people are changing the retail landscape.

Zoppos says excessive spending is out and experiences are in. Modern shoppers are looking for meaning in how they live and how they consume, which puts ethical buying and global impact in front along with price and convenience as drivers of purchasing.

Key findings include:

  • Ninety-one per cent of consumers want brands to use sustainable ingredients or material

  • Ninety-two per cent believe that sustainable business practices should be standard

  • Over 50 per cent think products should be made from recycled materials

  • Consumers are willing to pay more for these options - two-thirds will buy products from a sustainable or socially conscious brand (73 per cent of millennials)

  • Seventy per cent will pay more for products that don’t infringe human rights

  • There has been an 11 per cent increase in ethical cosmetics sales in the past two years

  • Leather shoe sales are on the decline

  • There has been a 60 per cent increase in women buying second hand clothes

Read the full article by Dr Zoppos