ESG Update as at 16 July 2019

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Australian and New Zealand ESG Updates

Vision Super joins investors in calling out Amazon on human rights

A coalition of investors worth over US$4.3 trillion, the Investor Alliance for Human Rights, is urging Amazon to talk about and adhere to labour rights within Amazon’s supply chain and operations. Vision Super, an industry superannuation fund, has joined the coalition.

Vision Super says it is a values based fund, taking all three elements of environmental, social and governance seriously in its investing decisions. Amazon has been in the media for treating striking workers poorly and even retaliating against workers for taking actions.

The Alliance wants Amazon to explain their new supplier code of conduct, how it fits in with workers’ rights at work according to international standards, and how the code is being implemented. The Alliance wants to know more about what Amazon is doing, to help protect their investment.

Two other Australian superannuation funds signed the letter - Statewide Super and Australian Ethical.

Christian Super launches two new ethical options

Two new ethical options are now available for Christian Super’s 27,000 members: Ethical Growth Plus and Ethical Index Shares.

Ethical Growth Plus has an asset allocation of 84 per cent to growth assets and 16 per cent to defensive assets, looking for a 3.5 average annual return above inflation. The ideal investor is 45-65 with reducing or no debt, or those planning for retirement.

Ethical Index Shares invests in Australian and global shares, suitable for 18-45-year-olds paying down a mortgage.

FTSE Russell launches new climate risk government bond index

Global index provider FTSE Russell recently launched a new climate index, the FTSE Climate Risk-Adjusted World Government Bond Index. Investors can now look at climate risk in relation to sovereign debt. The index is derived from the World Government Bond Index, and can be used as a portfolio measurement tool and the underpinnings of an investment portfolio.

Each country gets a climate score, with three main pillars assessed: transition risk, physical risk and resilience. A single combined score is then used to weight exposure in the index. Those countries that are better prepared and less threatened for climate risks score higher.

Perth-based start-up offering sustainability investment data for portfolios

Sustainable Platform is an information and research company founded by two high performers, Mark and Anna Andrich. Mark is a former oil and gas engineer and hedge fund manager, with a PhD in water engineering, while Anna has an MBA, a financial accounting degree, and speaks five languages.

Mark wanted to invest sustainably himself, but found finding the information he wanted difficult. By 2017 he had the world’s largest online database of companies analysed for sustainability. The company soon attracted the interest of pension funds, including WA Super. Other clients include Nanuk, NGS Super, and a Norwegian fund, KLP.

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Global ESG Updates

Global emissions targets - Australia shamefully not even on list

Every country in the world signed the Paris Climate Agreement, however we still have a long way to go to get to the net-zero emissions goal. Australia, the United States, and the Arab states of the Persian Gulf are notably absent from the below list.

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Image: Energy and Climate Intelligence Unit (ECIU)

Philip Morris ‘attempting to normalise tobacco use’ with new heating methods

A new heated tobacco product (HTP) called the IQOS has been approved by the United States Food and Drug Administration. The stick is heated electronically, not burnt, releasing a vapour that contains nicotine. Philip Morris, the manufacturer, claims that the sticks are far safer than burnt tobacco (smoking). The risk has not been demonstrated as less than smoking, however this hasn’t stopped Philip Morris from marketing the products in countries with fewer restrictions on tobacco advertising.

Investors are being warned by anti-tobacco groups that HTPs may be a possibly misleading method of attempting to renormalise tobacco use.

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ESG Research

RIAA data shows responsible investments consistently outperform

A benchmarking report published by the Responsible Investment Association of Australasia (RIAA) reveals that responsible funds are outperforming most mainstream funds, delivering average higher returns across one, five and 10 years.

The Benchmark Report uses KPMG data, which shows that Australian equities responsible share funds have an average return of 6.43 per cent over five years and 12.39 per cent over a decade, compared with 5.6 per cent and 8.91 per cent respectively for the S&P/ASX 300 index.

RIAA assessed firms for a ‘leading approach’ to ESG integration, with only 34 out of 120 demonstrating such.

RIAA chief executive Simon O'Connor said: "The findings of our report refute any misconception that investing responsibly comes at a cost in terms of performance, and contributes to the mounting body of evidence showing that responsible and ethical investing leads to better investment outcomes, alongside benefiting people and the planet."

Australia’s responsible investment market grew by 13 per cent in 2018, now overseeing $980 billion in funds under management. Forty-four per cent of Australia’s assets are now managed in accordance with responsible investment principles, whereas that figure was just 17 per cent five years ago.

The report also revealed a gap between what investment managers were screening for, and what investors cared about being excluded.

Key findings include:

  • Thirty-two per cent of consumers want fossil fuels excluded, but just five per cent of managers exclude fossil fuels

  • Twenty-two per cent of consumers want human rights violations excluded, but just four per cent of managers exclude human rights violators

  • Ten per cent of consumers want controversial weapons excluded, but 31 per cent of managers exclude these

  • Nine per cent of consumers want tobacco excluded, but 30 per cent of managers exclude tobacco

  • Nine out of 10 Australians expect their superannuation and other investments to be invested responsibly and ethically

Download the RIAA Benchmarking Report

List of fund managers scoring low on disclosing ESG factors

A new report reveals that Australian listed fund managers are lagging behind ASX 200 counterparts when it comes to disclosing ESG information on their companies. The JP Morgan ESG Pathfinder report authored by Stephen Blagg shows that many of Australia’s biggest and brightest scored lower than the median score on ESG disclosures, and showed slower growth in their scores.

The median score for ESG disclosures was 76.1, with Magellan Financial, Pendal Group and Platinum Asset Management all scoring lower. The report scored ASX 200 companies on their reporting of material sustainability and whether sufficient ESG data was available in their ASX fillings for 2018.

Australian companies are improving, the report says - we’ve seen a 30 per cent improvement since 2011. Financials and infrastructure companies performed well, however real estate companies scored the lowest.