ESG Update as at 4 February 2020
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Australian and New Zealand ESG Updates
Australian renewables forecast for record year
Australia’s renewable energy sector is set for a record year in 2020, despite a huge drop in renewable energy investments in 2019. Rystad Energy, a consultancy firm, says that large-scale photovoltaic (PV) projects will be the greatest source of new capacity additions - 1.96 GW. Overall, 3.6 GW of renewable energy capacity is expected this year, up from 2.6 GW in 2019.
Wind accounts for 1.57 GW, with 0.1 GW from batteries. Pilot hydrogen projects are projected to come online, with the off-grid sector gaining ground, Rystad found.
There are four new large-scale PV projects due to be completed this year:
Darlington Point (275 MW)
Limondale (249 MW)
Kiamal Stage 1 (200 MW)
Sunraysia (200 MW)
New projects supported by government auction schemes and grants are entering the construction phase, with developers lining up projects to replace coal-fired power plant, Liddell, which is to close by April 2023.
UniSuper pressured to drop fossil fuel investments
Market Forces is pressuring UniSuper to divest itself of fossil fuel companies. UniSuper does not currently have a fund-wide exclusion on fossil fuel investments, however, says it engages with companies to improve climate risk management. According to disclosed proxy votes to 30 June 2019, UniSuper has failed to vote in favour of a single climate-change-related shareholder resolution in Australia. UniSuper’s investment information shows that about $10 billion (about 12 per cent) is involved in fossil fuels.
Market Forces asset management campaigner Will van de Pol said: "While Australia's scientific and academic community work towards climate change solutions at this time of unprecedented bushfire crisis, their superfund is showing reckless disregard by investing their retirement savings in the companies causing the problem."
"Instead of paying lip-service, UniSuper can and must be at the vanguard of sustainable investment."
UniSuper released several updates in 2019 on its climate change policy, with the latest report being the Climate risk and out investments, which outlines the fund’s goal to encourage its investee companies to meet Paris Agreement expectations. In November 2019, the Financial Standard reported that the fund’s exposure to fossil fuels actually increased from eight per cent to 12 per cent across 18 months.
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Global ESG Updates
World Economic Forum releases risk report 2020
The most recent Global Risks Report from the World Economic Forum has been published, with predictions of increased divisions globally and locally and an economic slowing. The report includes the views on our greatest risks in 2020 by over 750 global experts and decision-makers. These leaders were asked to rank their biggest concerns in terms of likelihood and impact, with almost 80 per cent saying they expected ‘economic confrontations’ and ‘domestic political polarisation’ to increase this year.
The Global Risks Report is produced in partnership with Marsh & McLennan and Zurich Insurance Group.
The top five global risks in terms of likelihood were all environmental, and include:
Extreme weather events with major property and infrastructure damage with loss of human life.
Failure of climate-change mitigation and adaptation by the business community and governments.
Human-driven environmental damage and disasters such as oil spills and radioactive contamination.
Major biodiversity loss and ecosystem collapse with irreversible consequences
Major natural disasters such as earthquakes, tsunamis, volcanic eruptions and geomagnetic storms.
.When it came to the age differences, the report says the risks are seen differently by each generation, with those born after 1980 ranking environmental risks higher than other respondents.
Watch the presentation at WEF’s website
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ESG Research
The impact of divesting fossil fuels from a portfolio
A recent study has examined the financial outcomes of divesting fossil fuels from an investment portfolio, discovering it has no meaningful impact. The conundrum continues with investment managers wrestling with the decision.
The California State Teachers’ Retirement System made an announcement recently that it would not be divesting from fossil fuels since it could have a negative impact on its investment portfolio. Meanwhile, over 50 per cent of United Kingdom universities have made a commitment to divest from fossil fuels, and BlackRock, the world’s largest investment company, has vowed to shift its entirety to sustainable investments.
Researchers Christopher Ryan and Chris Marsicano decided to put the decision to the test in a study that looked into the impacts of divestment on endowment values at universities that partially or fully divested from fossil fuels.
The results showed that there was no discernible, consistent, average impact of divesting from fossil fuels on endowment assets. The study, Examining the Impact of Divestment from Fossil Fuels on University Endowments, found that “…divestment had limited effect on the value of mid-sized and large endowments, with inconclusive evidence of the effect of divestment for small and very large endowments or private university endowments more generally.”
While Ryan and Marsicano said the results should be interpreted with caution, it was suggested that the negative impact of divestment may be ‘overstated’ in the near-term and that the results suggest there is not a negative impact linked with divestment for mid- or large-sized endowments.
Paris studies shows how ESG enhances valuations
A researcher at HEC Paris Business School, Augustin Landier, and his associates examined whether how ethical a firm is matters in terms of valuation in their study, ESG Investing: How to Optimize Impact?. Yes, it does matter. People are prepared to pay more for an ‘ethical’ stock and expect to pay less for an ‘unethical’ stock.
Another study, Do Investors Care About Corporate Externalities? Experimental Evidence, by Jean-François Bonnefon, Parinitha Sastry and David Thesmar did an experiment that showed investors are willing to pay 70 cents more for buying a share in a company that gives one dollar per share to charities.
This study showed that companies that are harming society are valued at $0.9 less than companies that are socially neutral. The study used Amazon’s Mechanic Turk, an online platform that allows (mainly) researchers and businesses to post small tasks that are completed by volunteers. The experiment saw participants submit bids for shares in three fake companies that varied considerably in terms of their dividends and by donations to charities. The ethical company donated to charities, while the unethical company actively took money from charities to give to shareholders. The third neutral company neither took nor offered money from or to charities.
