Funds join in social, environmental and governance factor pressure

Marc

Hunkered Down for the Duration with a Mask on...
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From The International Herald Tribune:

Asset managers are increasingly incorporating social, environmental and governance factors into their investing strategies, with institutional investors becoming more active as shareholders, pushing the boards of their core holdings to improve their practices and disclosure in order to strengthen returns over the long term.

Investors are pressing for better disclosure and performance in a number of areas, from transparency of corporate governance to the treatment of suppliers, environmental issues and other areas that have traditionally fallen under the concept of corporate social responsibility, said Colin Melvin, the director of corporate governance at Hermes Pensions Management, the London-based institutional fund manager owned by the BT Pension fund.

Active investors are looking beyond the traditional "screened" portfolios that exclude companies for bad practices, or add companies for good practices in sectors that are perceived as needing better standards.

"If you're talking specifically about investment funds with exclusionary policies, then that sector is somewhat flat," Melvin said. "But there is a lot more interest among fund managers and clients in taking more seriously the responsibility of ownership."

Reflecting the shift, Henderson Global Investors, a British fund manager, said last year that it would reorient £250 million, or $430 million, of assets away from screened portfolios into specific companies that are working toward a more sustainable future.

"In a sense the change is merely a more powerful reinterpretation of fiduciary duty," Melvin said, "leading large funds to realize that selling out holdings is not the best way to effect change."

One group that has been particularly active in pushing this agenda is the Enhanced Analytics Initiative, an international collaboration among asset owners and managers, founded in London in 2004 to encourage better investment research. With more than €700 billion, or $840 billion, under management, the group's members aim to improve long- term gains by rewarding brokerage firms that offer the broadest research into nonfinancial issues that can affect corporate performance.

The response, said David Blood, lead director of the initiative, has been resoundingly positive - so much so that the group could disband in the next two or three years, as "holistic" research becomes increasingly available. "The research community has been very constructive and aggressive," he said.

A global survey of 180 investment managers released last year by Mercer Investment Consulting found that almost 80 percent of respondents expected active ownership to be a mainstream practice within five years. while almost 40 percent expected investment screening to become mainstream in the same time frame.

Putting a total value on socially responsible fund investment is complicated by differences in definition, but the European Social Investment Forum, a pan-European network, estimates that socially responsible investments by European institutions were worth about €336 billion in 2003 and may have reached €500 billion by the end of 2005.

Matt Christensen, the forum's executive director, said that 5 percent to 10 percent of all investments in Europe could be classed as socially responsible.

A study this year by the Social Investment Forum, a U.S. trade association for the social investment industry, put total socially responsible investment assets in the United States at $2.29 trillion in 2005, up from $639 billion in 1995.
 
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Sidney Vianna

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Re: Funds join in social pressure

http://www.latimes.com/business/la-fi-briefs7.4jun07,1,6951388.story?coll=la-headlines-business

Norway Sells Holdings in Wal-Mart Stores
From Reuters
June 7, 2006


Norway said its more than $240-billion global pension fund would no longer invest in Wal-Mart Stores Inc. because of what the country called "serious and systematic" abuses of human and labor rights.

A Wal-Mart spokeswoman declined to comment.


OSLO, June 6 (Reuters) - Norway said on Tuesday its more than $240 billion oil fund would no longer invest in Wal-Mart (WMT.N: Quote, Profile, Research), the world's largest retailer, due to what it called "serious and systematic" abuses of human and labour rights. Norway's government also excluded shares in mining group Freeport-McMoRan Copper & Gold (FCX.N: Quote, Profile, Research) from the fund -- one of the world's biggest pension funds -- for environmental reasons.


The fund sold its holdings in both firms, which had been worth about $430 million at end-2005 -- most of it in Wal-Mart stock -- by the end of last month, the finance ministry said.
"These companies are excluded because, in view of their practices, investing in them entails an unacceptable risk that the fund may be complicit in serious, systematic or gross violations of norms," Finance Minister Kristin Halvorsen said in a statement.
The move raised the number of stocks excluded from the fund for what Oslo calls ethical reasons to 19. Norway has previously ejected companies involved in producing anti-personnel land mines, cluster bombs or nuclear weapons.
The Finance Ministry based the exclusions on the recommendations of the fund's ethical council. "The recommendation to exclude Wal-Mart cites serious/systematic violations of human rights and labour rights," the finance ministry said. "The recommendation to exclude Freeport is based on serious environmental damage."

Wal-Mart officials could not be reached immediately for comment. Freeport-McMoRan's spokesman rejected the allegations.
Wal-Mart shares slipped 0.5 percent at $46.96 by 1402 GMT in New York. Freeport's stock was down 0.9 percent at $51.43.
SLAMS WAL-MART


The ministry said the council had found "an extensive body of material" that indicated Wal-Mart had broken norms, including employing minors against international rules, allowing hazardous working conditions at many of its suppliers and blocking workers' efforts to form unions.
It also listed other alleged Wal-Mart abuses including pressuring workers to work overtime without compensation, discriminating against women in pay and blocking "all attempts to unionise".
It said that Wal-Mart "employees are in a number of cases unreasonably punished and locked in".
The council's report encompassed Wal-Mart's operations in the United States and Canada and at its suppliers in Nicaragua, El Salvador, Honduras, Lesotho, Kenya, Uganda, Namibia, Malawi, Madagascar, Swaziland, Bangladesh, China and Indonesia. Halvorsen said Norway might provide an example to other investors in the way it exercises ownership rights. It is of great value that others see what we do," Halvorsen, who also leads the Socialist Left party, told a news conference.

The ministry blamed Freeport-McMoRan for using a natural river system for disposal of tailings from a huge copper mine on the island of New Guinea in Indonesia. "The Council on Ethics finds that the environmental damage caused by the mining operations is extensive, long-term and irreversible," it said.
Freeport-McMoRan's spokesman William Collier said that the tailings were not toxic. "They did contact us," he said of the fund's managers. "We told them all this, and we feel it reflects a misunderstanding." The fund had held about 2.5 billion Norwegian crowns ($415.9 million) worth of Wal-Mart securities at the end of the 2005, and its holdings in Freeport-McMorRan were worth about 116 million crowns, the ministry said. All were sold by end-May.

The Government Pension Fund -- Global, which invests surplus oil wealth in foreign stocks and bonds, was worth 1.48 trillion Norwegian crowns ($246.2 billion) at the end of March. The fund is managed for the government by Norway's central bank.
 
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Sidney Vianna

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There is sufficient evidence (as if more was needed...) that ESG issues affect shareholder value in both the short and long term, and that the impact of ESG issues on share price can be valued and quantified.

Attached a recent study on the subject.



 

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