ESG Update as at 21 January 2020

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Australian and New Zealand ESG Updates

Philip Morris seeking regulatory approval for heated tobacco products

Approval is being sought by tobacco giant Philip Morris for entry into the Australian market for its heated tobacco products (HTP). An HTP is a small tobacco stick heated electronically, not burnt, to release nicotine via an aerosol.

Philip Morris is saying the products are a low-risk alternative to traditional smokey tobacco products since the chemicals linked with smoking-related illness are released by burning tobacco. A regulatory application has been lodged with the Therapeutic Goods Administration. Australia is one of just a handful of countries that have not approved smoking alternatives such as vaping and HTP.

Social Media Alert: Facebook and Google have 11 months to make deal with media companies

The Australian government has given Facebook and Google just 11 months to negotiate with media companies over sharing revenue, data and algorithm changes. The purpose of the changes is to ultimately enable these companies to profit and continue to produce high-quality journalism. If a deal isn’t struck voluntarily, the government will step in with mandatory regulations. The negotiations are being overseen by Rod Sims at the Australian Competition and Consumer Commission.

ASX200 hits gender equity targets

The ASX200 has reached its 30 per cent female board member target for the first time. This is just the start, with an ultimate goal of 40 per cent males and 40 per cent females, and 20 per cent either, with greater ethnic diversity.

NZ passes new medical cannabis regulations

In April 2020 New Zealand will join many other jurisdictions in increasing access to medical cannabis products via a licensing scheme that allows domestic cannabis growing and citizens to manufacture and supply medicinal cannabis products. Doctors will be able to prescribe both THC and CBD products under the arrangement.

A national Medicinal Cannabis Agency will run the scheme, whereby businesses must apply for new medicinal cannabis licences, with import and export options.

Leaked ANZ document shows bank reducing exposure to coal

An internal document belonging to ANZ was leaked, showing the bank is planning to reduce its exposure to coal. ANZ plans to reduce its lending to thermal coal projects by $700 million by 2024, a 75 per cent reduction. ANZ is currently the largest coal lender in Australia, making it a little leery of publicly announcing its position to its large coal client base. No public announcement has been made.

BHP to quit industry lobby groups that do not support the Paris agreement

BHP is set to leave membership of industry lobby groups that do not publicly support the Paris agreement goals. The memberships include the NSW minerals Council, the Mining Association of Canada, the United States Chamber of Commerce and the American Petroleum Institute. Unless these associations make material changes by April, BHP will exit.

First: Australia’s highest-paid CEO is a woman

The most recent Australian Financial Review survey of chief executive pay has revealed that Australia’s highest-paid CEO is a woman. Macquarie Group CEO Shemara Wikramanayake is paid over $18 million, followed by Goodman CEO Gregory Goodman, who is paid just $13 million. Elizabeth Gaines, Fortescue Metals CEO, left with best performing CEO of the year based on shareholder returns. Only four women are on the top 50 pay list, with Mirvac’s Susan Lloyd-Hurwitz and Coca-Cola Amatil’s Alison Watkins. Last year’s highest-paid CEO was Qantas’ Alan Joyce, who fell to number 18 this year after a pay cut.

Sweden’s Central Bank divests WA and QLD bonds over emissions concerns

An announcement has been made by Sweden’s Central Bank that the bank has sold bonds issued by Western Australia and Queensland (and Alberta, Canada) after concerns about high greenhouse gas emissions. The bank has stated it will no longer hold investments issued by areas with high climate footprints, despite high yields. The bonds made up about eight per cent of the bank’s investments.

BlackRock letter lays out tectonic shift in sustainable investing principles

BlackRock has written to its clients and industry leaders to lay out its plan for moving to sustainable investing principles across its product range. The plan is to sell down and equity of coal mines across its discretionary and management products by mid-2020.

BlackRock is going to increase its sustainable investment measures and double its passive exchange-traded funds linked to ESG factors count. The company says it will be expanding and improving sustainable benchmarks.

Pendal welcomes impact investment team

Pendal has appointed a new impact investment team to establish a global equity impact strategy in the in-house ESG research team. The team will be based in London, lead by Tim Crockford, with help from Mohsin Ahmad, Maxime Le Floch and Maxine Willie. The new strategy will come out of Regnan by the end of the year. The fund will use the United Nation’s Sustainability Development Goals to guide investments.

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Global ESG Updates

Spain has first day without coal-fired power

The first full day of coal-free power has occurred in Spain’s peninsular system, with wind output at a record high. Data show that December 14 was the first day of no coal being burnt since the records began, however, was only achieved in the peninsular system, with coal-fired output still occurring around the Balearic islands.

Germany cements goal of no coal by 2038

Germany is predicted to be the first country to completely forgo nuclear and coal power under an agreement to compensate workers, companies and regional governments when it turns off brown coal-fired power plants by 2038. A 40 billion euro deal was struck with the premiers of Germany’s coal-mining regions. The exit is to be accompanied by investing in renewables.

The dirtiest plants will be shut down first. The carbon emissions certificates of the power stations would be cancelled after the closures of the plants, to cap emissions and increase the price for certificates traded under the European Union’s scheme.

USA renewables sector investments hit record high of $55 billion, China dominates

In 2019 the United States’ renewable investments sector hit a record high of US$55 billion. Wind and solar companies were quick to qualify for federal tax credits being scaled back in 2020. The increase amounts to 28 per cent, only being beaten by China, and ahead of Europe. The 2019 numbers are up one per cent on 2018.

China’s renewables investments dropped by eight per cent to US$83.4 billion, which is the lowest since 2013. European investments dropped seven per cent to US$54.3 billion. Brazil increased renewables investments by 74 per cent to US$6.5 billion.

Shareholder activism increasing

Lazard’s 2019 review of shareholder activism has found that 147 investors launched campaigns against companies, with 43 of those investors being active for the first time, demonstrating an increase in shareholder activism. Almost 200 companies were targeted by activists, which is down 17 per cent from 2018 but matching multi-year averages.

The biggest activist targets in 2019 were AT&T (US) and SAP (Germany), with conflicts with one of the world’s biggest activist funds, Elliot Management. Non-US targets for activism accounted for 40 per cent of campaigns during the year, up from 30 per cent in 2015. Japan was the second-most targeted country, second only to the US. Europe saw a decrease in activism in 2019, with activity expanding across France, Germany and Switzerland. Over 100 board seats were won by activists over the year, with many secured via negotiated settlements (85 per cent). Twenty activist board seats went to female directors.