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Today’s top sustainability news, including: UK stewardship overhaul, UN PRI swings
the axe and gender-equality investing gets a boost
Was anyone really, truly shocked when the New York Times reported this weekend that President Donald Trump has paid next to nothing in taxes? Surprised at exactly *how low* the number was? Maybe. But shocked? Given how common tax avoidance is, that seems unlikely. To be clear, this is not solely a Trump issue. In many circles, tax avoidance is “considered smart,” said Michael Bröning, executive director of the Friedrich-Ebert-Stiftung, a German political foundation. “It’s just [seen as] playing the system.”
However, for anyone hoping to fix inequality, fight climate change or “build back better” from the pandemic, it is one of the most important problems to fix. Indeed, Moral Money suspects that it could become a key ESG theme in the next year. “This is not something trivial. It’s something that really goes to the heart of democracy,” said Mr Bröning.
Just looking at the US: the Government Accountability Office estimates the country loses about $458bn in revenue every year from tax avoidance and evasion. With massive budget shortfalls looming, and millions still unemployed from the pandemic, that money could do a lot of good. Yet little is being done to reclaim that cash. And this goes for countries across Europe too, he noted. In the US, a big problem is that the Internal Revenue Service is so under-resourced it cannot keep up with its duties. “The audit rate for the biggest corporations has declined by 58 per cent [over the past 10 years],” said Samantha Jacoby, senior
tax legal analyst at the Center on Budget and Policy Priorities. “So, if you think about these mega corporations, it used to be almost a certainty that they would get audited every year and now they have sort of a coin flip.”
And few companies have voluntarily paid more tax, even with all the talk about stakeholder values. But Mr Bröning believes that could change, especially if investors and consumers ramp up the pressure given the recent furore over the news about Mr Trump. Development finance “2X Challenge” taps private markets for
women’s equality
At last week’s UN General Assembly, FES announced a new fair tax advocacy plan in conjunction with the UK’s Fair Tax Mark — a group which verifies that companies are not unduly shirking their share of the burden — and the Independent Commission for the Reform of International Corporate Taxation. Groups such as the UN Principles for Responsible Investment and the Global Reporting Initiative have also pushed the issue to the fore. Investors and ESG campaigners should take note — and any company claiming to put purpose ahead of profit should prepare to put its tax money where its mouth is.
(Billy Nauman)
When the UK unveiled the world’s first stewardship code back in 2010, the aim was to encourage big investors to focus on pushing for good corporate governance at the companies they invested in.
Fast forward a decade and that focus has also been extended to environmental and social issues under the latest reiteration, which came into force at the start of this year and is being unveiled in greater detail today. The new version has also been extended to include all asset classes, not just equities, and this move is being watched closely by other countries around the world.
What does the update mean for investors? A lot of extra work if you ask many asset managers, who will now have to prepare an annual stewardship report in order to become a signatory to the UK code. Rather than focusing on their policies, they must now talk about what they have done rather than what they say they might do.
Despite this extra workload, more than 20 fund managers, pension funds and other asset owners have already submitted sample reports for review to the Financial Reporting Council, the UK watchdog, even though the first deadline for reports is not until the end of next March.
Claudia Chapman, head of stewardship at the FRC, said there were some good examples and case studies that showcased stewardship activity in the early reports, but also warned that more needed to be done to meet the new higher standards required under the updated code. “This is a big change,” she said, but added that there was a “real opportunity for investors to play a part in making [businesses and the economy] work better”, especially in the wake of the pandemic. (Attracta Mooney)
At the beginning of the year, Moral Money wondered if 2020 was the year when the UN-based Principles for Responsible Investment would finally get serious — and kick out some members of its global club of sustainable investors if they did not meet minimum membership requirements. This week, the UN PRI has followed through. La Banque Postale’s private bank subsidiary, BPE, and a Dutch trade union were two of the five members that PRI expelled. Another 23 have either voluntarily delisted or been delisted for failure to
submit their annual report, PRI said.
Launched in 2006 under UN secretary-general Kofi Annan, PRI has grown to include 3,370 signatories from the European Stability Mechanism to servicers such as Vigeo Eiris. Increasingly, investors eager for a green halo have inked a PRI pledge as a bare-minimum step towards sustainability. But in 2018, after facing criticisms about its rigour, PRI warned its members some would be cut for failing to meet minimum standards. These standards include having a responsible investing approach that covers at least half of a firm’s assets under management. Last year, PRI said one-third of the 180 members who had been put on watch for possible delisting could be booted out in 2020.
Since then, many members in trouble have improved their standards and dodged delisting. And the PRI says that expelling 28 members is a “relatively small” purge. But the move is certain to shake up the sustainable investing community. Law firms and consultancies that advise clients about how to improve their sustainability can no longer say that joining PRI is just checking a box. Currently,
15 signatories are at risk of being delisted in 2021, PRI said.
Another low number next year might not be so bad, if — as PRI chief executive
Fiona Reynolds (pictured above) has said — the goal of the delisting warnings is to
get people moving in the right direction. (Patrick Temple-West)
Back in 2018, the development finance institutions (DFIs) of the G7 nations (such as the UK’s CDC Group) joined together to promote women’s equality through impact investing. The plan, dubbed the “2X Challenge”, had an initial goal of pulling in $3bn to be used to promote women-run financial institutions and help improve the lives of women in developing markets.
The plan has been a success so far. The G7 DFIs have exceeded the initial goal, hitting more than $4.5bn in assets earlier this year, including more than $1bn in assets from private co-investors. The group has also recruited another six DFIs to the cause. Now they are expanding the challenge to a broader market with a move they hope will open the gates to even more priva te capital.
A fund run by Development Partners International, a UK-based investment manager, was today designated as a “2X Flagship Fund”, the first such seal of approval from the CDC Group and the 2X Challenge.* If all goes to plan, this fund, which aims to promote gender equality in Africa, will serve a dual role: first as a
new vehicle for DFIs and private investors to invest in a way that promotes gender equality, and second as an example for other asset managers to follow when launching their own 2X Challenge funds.
“This represents a key milestone in our work to build the field of gender finance and to empowering women through our investing,” said Jen Braswell, director of value creation at the CDC Group. “‘I’ve already had quite a number of conversations with a variety of very big pension funds . . . and they’re all thinking about how they can invest with a gender and diversity lens and none of them know how to do it,” said Ms Braswell. “What 2X does is it gives that clear blueprint . . . Now we can share it out and build the
market.” (Billy Nauman)
Corporate demand for voluntary carbon offsets has increased this year and the market is bouncing back. This is striking, given concerns that the coronavirusinduced economic downturn would damp demand, especially from airline companies.
On the calendar
Top corporate governance thinkers, including Leo Strine and SEC commissioner Allison Lee, will be speaking at an NYU Law conference on October 1.
Grit in the oyster
Can guns ever be “sustainable” or ESG compliant? Not in the eyes of some ESG investors, it might seem. But this week the FT’s sharp-eyed Sujeet Indap, US Lex editor, spotted a striking piece of news: a gun-making company called Sierra Bullets has just bought a smaller, bankrupt rival called Barnes Bullets, and the latter is now marketing itself as a “green” bullet maker.
More specifically, Barnes considers that it makes “the world’s most technologically advanced lead-free bullets” that are more eco-conscious than traditional alternatives. It hopes to use this tag to appeal to sports and hunting fans who want to be more ESG-compliant. Gun lovers might cheer; anybody who dislikes all weapons manufacturers on principle will not. Either way, if nothing else, the news
shows that the sustainability movement keeps expanding to touch new fields. (Gillian Tett)
Further reading
Rosneft warns BP and Shell creating ‘existential crisis’ for oil supplies (FT
Going green on bonds is best way to change behaviours (FT)
Goldman Sachs names first woman to run major division in years (FT)
Oil traders rush to invest billions into renewables (FT)
How Coal-Loving Australia Became the Leader in Rooftop Solar (NYT)
Philanthropy Needs to Rise to the Moment of the Racial Justice Movement (Barron’s)
Sustainability Investing Is Changing the World Faster Than You Think (Barron’s)
Video: Black Employees Speak Out on Representation and Racism (FundFire
https://www.ft.com/content/3bb27849-e60b-4b7c-bb79-4f99b3a9c489
