Switzerland’s Ethos Foundation has branded the sustainability reports of more than 140 of the country’s largest listed companies as “clearly unsatisfactory” in its first study evaluating such reports. Ethos – a Swiss foundation promoting socially responsible investment amongst pension funds – said its research highlighted a wide disparity between companies and significant gaps in sustainability reports. For the first time, listed Swiss firms of a certain size were required to submit such reports to a shareholder vote in addition to publishing them. The new requirement aimed to offer investors a better idea of how companies managed ESG concerns, with Ethos finding a “problematic” lack of transparency and insufficient data quality. Just 75 of the 143 companies that submitted their sustainability report to a shareholder vote followed a recognised reporting standard – such as the Global Reporting Initiative or the Sustainability Accounting Standards Board – which Ethos said was essential for investors to correctly assess and compare businesses’ non-financial performance. Additionally, only 61 companies had their sustainability report verified by an external auditor, with 55 of them limiting the audit only to some ESG indicators – rather than the entire report. Ethos has backed the Swiss Federal Council’s plan to tighten its requirements to bring companies into line with stricter ones mandated by the EU. This would include making the use of a reporting standard and the verification of the report by an external auditor mandatory, and extending the reporting obligation to all listed companies.
Sustainable Investor
News in Brief
A group of institutional investors representing ₩4.7 trillion (US$ 3.5 trillion) in AUM and backed by the Asia Investor Group on Climate Change (AIGCC) has demanded robust climate action from South Korea’s Financial Services Commission (FSC). In a letter to Chairman Byoung Hwan Kim, the coalition urged the FSC to finalise the country’s sustainability-related disclosure roadmap, and mandate climate disclosure through a phased approach from 2026. More specifically, the letter called for: a clear roadmap for the early implementation of mandatory sustainability-related disclosures by year-end; mandated climate disclosure for listed companies with assets over US$1.48 trillion by 2026; and an English-language version of the Korean Sustainability Disclosure Standards, with a request for companies to publish English versions of their sustainability disclosures. The letter follows the AIGCC’s recent response to the Korea Sustainability Standards Board (KSSB) as part of a public consultation on exposure drafts of the standards. “Korea has long been a country of significant interest to global investors due to its competitive positions in diverse industries including semiconductors and automotive, but low company-level valuation relative to other emerging markets,” the letter mentioned. “Expediting the timeline of mandatory sustainability-related disclosure would not overly burden large listed Korean companies, since over half of them are already committed to voluntary sustainability reporting in 2023.” Signatories to the letter included: British Columbia Investment Management; East Capital; Fidelity International; Fineco Asset Management; Global Delta Capital; Legal and General Investment Management (LGIM); Schroders; and Tundra Fonder. Reporting a “growing movement” of large institutional investors focusing on engagement with Korean companies to act on climate change, the AIGCC said it would continue to work with those active in the country through a working group established in July.
UK asset manager abrdn’s Charitable Foundation (aCF) has launched its inaugural Innovation Fund, looking to make a social and environmental impact within local communities through funding from charities, non-profits and social enterprises. The fund aims to provide resources needed by organisations to pilot new projects linked to technology and innovation in line with aCF’s ‘Tomorrow’s Generation’ strategy. The strategy features two themes – ‘People’ and ‘Planet’ – aiming to help people overcome barriers and gain access to opportunities aligned with education, employment and financial wellness – as well as protect nature and address climate change. abrdn is encouraging organisations from the Americas, Asia-Pacific, EMEA and the UK to apply, with one grant up to a maximum of £50,000 (US$65,307) to be awarded per region. The application window for the grant closes on 1 November, and will reopen in Q2 and Q4 annually. “Innovation is a core part of our giving strategy, and we believe that investing in new ideas is key to identify solutions to existing and emerging social and environmental challenges,” said Kirsty Brownlie, Senior Social Impact and Partnerships Manager at abrdn. “The introduction of our new innovation fund allows us to support a diverse range of non-profit organisations based within our regions to test their ideas and potentially find sustainable solutions of the future aligned to social mobility, climate and nature.”
Private markets specialist firm Rede Partners has found growing demand from institutional investors for impact investing, despite broader fundraising challenges. The latest edition of its ‘Private Markets Sustainability and Impact Report’ surveyed more than 80 institutional investor limited partners (LPs) to take the temperature on sentiment, priorities and trends in climate, sustainability and impact investing. The results showed that 61% of LPs have increased their allocations to impact strategies in the past two years. More growth is expected this year, including some reallocation of capital from non-impact funds. Over half (58%) of investors also reported that climate-focused strategies – especially energy transition and decarbonisation – have increased in importance since 2022. In addition, 56% of LPs have been applying the same investment mandate to impact funds as they do to non-impact funds. These increases in allocations to impact strategies have happened in an environment where liquidity constraints force institutional investors to be more selective, Rede Partners noted. Although impact investment in private markets has historically focused on pure-play low-carbon businesses, the survey showed an increasing appetite for investing in transition strategies, with 75% of investors open to brown-to-green impact approaches. “Our research shows clearly that current market conditions continue to support an ongoing acceleration in impact investments, which has now matured into a distinct and sizeable market occupying an important niche within asset allocation strategies,” said Etiene Ekpo-Utip, Head of Climate and Impact at Rede Partners. “Investors’ growing allocations to sustainability-focused funds are being driven by their conviction that the sector offers opportunity for outsized returns. This conviction is particularly strong within the climate space, which they recognise as benefiting from strong structural tailwinds, a significant demand-supply gap for investments to grow into, and a relative abundance of investible opportunities.”
Companies globally are failing to recognise the importance of addressing workplace mental health issues, according to CCLA Investment Management. Only five of 119 companies assessed through the CCLA Corporate Mental Health Benchmark Global 100+ made its top two performance tiers by demonstrating a strategic approach to managing mental health, while just 12 companies improved their performance “sufficiently” since last year’s iteration to move to a higher tier. Only one company – HSBC Holdings – ranked in the top tier, followed by Roche Holding, Shell, Toronto-Dominion Bank and TotalEnergies in tier 2. Six of the ‘Magnificent Seven’ US tech giants – Alphabet, Apple, Meta Platforms, Microsoft, Nvidia and Tesla – ranked in the lowest performance tier with scores ranging between 0-20%, while Amazon ranked in tier 4. Now in its third year, the benchmark ranks companies collectively employing 21 million workers globally on how they manage and report on workplace mental health against 27 criteria covering management commitment and policy, governance and management, leadership and innovation, and performance reporting and impact. The benchmark is backed by a global coalition of 55 investors with a combined AUM of US$9.8 trillion, up from 29 founding signatories in 2022. “While some employers are improving the support they give to their employees’ mental health, too many are ignoring a critical issue for their workforce, to the detriment of their people’s wellbeing – and of the bottom line,” said Amy Browne, Director of Stewardship at CCLA and co-author of the report. Globally, 15% of working age adults live with a mental disorder, with the most prevalent mental health conditions costing an estimated US$1 trillion to the global economy every year – mostly from lost productivity. Although nearly all companies in the benchmark took some steps to support employees’ mental health, the average score was just 28% this year. Meanwhile, 52 investors with US$8.7 trillion in AUM supported efforts to engage with benchmark constituents to improve their performance on employee mental health by co-signing letters issued to companies in October 2023. Nineteen of them also engaged directly with companies throughout the year – either in collaboration with CCLA or independently.
Companies with gender-diverse boards are performing better than less diverse peers, with annual returns up to 5% higher for firms with more women in senior positions according to Bloomberg Intelligence. Board diversity has been gathering momentum, with the number of women in boardrooms having tripled to 26% in 2023 from under 9% in 2010, driven by regulations and shareholder activism. Bloomberg Intelligence’s study found that having more women on boards and in leadership roles reinforced fundamental financial analysis, bolstered ESG credentials, and helped investors make more informed decisions. France led the race on gender diversity with a female board ratio of 45%, followed by the UK with 42% of women board representation. However, boardrooms in emerging markets were found to be trailing on global standards for gender diversity, lacking market and regulatory support. In Latin America, more than 10% of companies have no female directors. There is also a deficit of women in executive leadership positions, with only 6% of female CEO roles globally and 3% in emerging markets. “Women capital drives value, gender diversity reinforces fundamental analysis and could help investors make more informed decisions, while also demonstrating better ESG credentials”, said Adeline Diab, Director of Research and Chief ESG Strategist at Bloomberg Intelligence. “More diverse boards often result in higher profits, stronger valuations and lower volatility in developed markets, like in the US and Europe.”
The Canadian government has announced its intention to deliver a national sustainable finance taxonomy and introduce mandatory climate-related disclosures for large, federally incorporated private companies. A statement said the new commitments were essential for market certainty, to unlock net zero investment opportunities, and to uphold the goals of the Paris Agreement. The ‘Made-in-Canada’ sustainable investment guidelines will serve as a voluntary tool for investors, lenders and other stakeholders by credibly identifying green and transition-focused economic activities, accelerating and scaling up the flow of capital into net zero-aligned activities across the Canadian economy. The introduction of mandatory climate disclosures through amendments to the Canada Business Corporations Act will also help investors to better understand how companies’ current activities align with the realities of a net zero economy. As small- and medium-sized businesses will not be subject to these requirements, the government is currently considering ways to encourage these companies to voluntarily publish climate disclosures. “In the 21st century, a competitive economy is a net zero economy,” said Chrystia Freeland, Deputy Prime Minister and Minister of Finance. “We are seizing Canada’s economic advantages to attract investment and ensure Canadian workers benefit their fair share in the global race to net zero.” The Canadian government predicts that reaching net zero by 2050 while growing the economy will cost between C$125 billion to C$140 billion (US$91 billion to US$101.9 billion) of investment a year. “The development of a sustainable investment taxonomy, paired with heightened transparency on climate disclosures, amounts to an important stepping-stone for Canada on the path towards a cleaner economy,” said Steven Guilbeault, Minister of Environment and Climate Change. “These initiatives will help mobilise needed private sector financial flows to build a cleaner economy and give investors who are looking for the sustainable option the clear direction they seek.” In addition, Canada announced the issuance of an additional C$2 billion in green bonds through the re-opening of Canada’s second green bond, issued in February.
South Korea’s National Pension Service (NPS) has voted in favour of ESG and climate-related resolutions at the AGMs of portfolio companies far less frequently than its international peers, according to a recent analysis. In the five years to June, NPS supported less than half (49.8%) of ESG-related proposals filed at international firms in its portfolio. This placed it sixth of seven large pension funds, behind the US’s CalPERS (73.4%), ABP of the Netherlands (76%) and Sweden’s AP1 (75.7%), in a comparative study undertaken by South Korea’s Economic Reform Research Institute (ERRI). The analysis showed that NPS voted frequently in favour of governance-related proposals (79.6%) but less so on environmental (43.9%) and social (37.6%) themes. NPS has US$800 billion in AUM – of which around a third is invested in overseas equities – and is the second-largest public pension fund globally, after Japan’s Government Pension Investment Fund. NPS supported 39.8% of climate-related proposals, which is a much lower rate than ABP (92.6%), AP1 (83.3%), and CalPERS (67.8%). The analysis covered votes on climate-related shareholder proposals, the reappointment of directors that investor initiatives and climate-focused NGOs recommended ‘against’ due to inadequate responses, and management proposals, such as ‘say on climate’ votes. Unlike the other six funds included in the study, the ERRI noted, the NPS does not have specific criteria for environmental or social issues in its voting policies, focusing only on governance factors.
The UN-convened Principles for Responsible Investing (PRI) has released a framework designed to support policymakers in identifying and addressing potential negative impacts of the net zero transition across all segments of society. Details are published in a new paper which also aims to inform investors’ engagements with policymakers on transition-related social issues. “Investors play a pivotal role in supporting the transition by engaging with policymakers to develop socially conscious transition policies,” said Margarita Pirovska, the PRI’s Director of Global Policy. “The economic transition is an opportunity to build a model for sustainable, inclusive, and resilient growth, but only if we account for the socio-economic implications of the transition and broaden the scope of stakeholders to consider society as a whole.” A whole-of-government policy approach is needed to ensure an effective economic transition, the report noted. The PRI’s next priorities are to engage with policymakers at the international and national level to position the economic transition as a central rather than secondary goal of public policy, the investor body said. “The global energy transition is all-encompassing and can only be successful if people are at the heart of it,” said Maria Nazarova-Doyle, Global Head of Sustainable Investment at IFM Investors. “A step-up in policy levers is urgently required to ensure this enormous societal transformation is smooth and successful.”
Shareholders for Change (SfC), an 18-strong institutional investor network, has criticised the Multiple Vote Share Structures Directive formally adopted by the EU yesterday due to its negative impact on investor influence. The European Parliament adopted the directive in April, which follows the passing of the Listing Act Directive of 2022. Several European countries have recently introduced multiple voting rights structures, including Germany in December 2023, Italy in March this year, followed by France in June. SfC branded multiple vote share structures as a “control enhancement mechanism”. These typically create two distinct classes of shares, with at least one having a lower voting value. “Introducing multiple vote share structures in a company reduces the decision-making power of other shareholders [or] investors in proportion to their financial stakes,” the network said. Potential problems include shareholder entrenchment, diversion of the company’s assets and the extraction of private benefits by the controlling shareholder through related party transactions. SfC also highlighted that the dilution effect caused by multiple vote shares could enable controlling shareholders to block certain resolutions, including those focused on sustainability goals. The network called for the implementation of safeguards to protect minority shareholders, noting that while efforts to introduce safeguards in the directive are “commendable” that they are “not sufficient to guarantee the rights of all shareholders.”
