Watching For The Signals That Corporate Sustainability & Sustainable Investing Trends Will Continue to Advance in the Time of the Virus Crisis

By Hank Boerner – Chair & Chief Strategist – and the G&A Institute Team

In each issue of our Highlights newsletter and in other of our G&A Institute communications we have been sharing news, opinion & perspectives and research results that we think will be of value to professionals in the corporate sector, in the capital markets, and in the social sector (not-for-profits, NGOs and other institutions). 

Our objective in structuring our communications over the past decade-plus is to help to inform and educate as corporate responsibility, sustainability and citizenship strategies re-shaped the corporate sector and investors adopted ESG / Sustainability approaches.

Driving “sustainable investing” to $1-in-$4 of professionally-managed AUM according to the latest survey of US SIF. In response 86% of S&P 500(r) firms are publishing sustainability et al reports according to the latest survey by our team. (Updates to both surveys are in the works in 2020.)

Over time, our focus and communications helped to tell the story of a revolution taking place in the private, public and social sectors of our society. Companies re-defining “purpose”. Investors adopting new approaches…SRI, impact, green, sustainable, and other identifiers.

Suddenly, we are all in a new and very challenging (and frightening) operating environment (both personally and in our businesses) and the questions that we have and that are on the sustainability professionals’ minds are…

(1) what might be the impact of the global coronavirus crisis on the corporate sector’s forward movement — are / will companies continue on their sustainability journey, embrace and demonstrate corporate purpose and the new era of stakeholder primacy, demonstrate excellence in corporate citizenship, and

(2) what might be the impact of the virus crisis on the capital markets and investors’ perspectives of the value and importance of embracing sustainable investing as the global capital markets continue to be in turmoil …will the crisis be a plus or minus for ESG / sustainable investing? What might the longer-term effects of the crisis be for both issuer and investors in a prolonged crisis? Will the resilience of the more sustainable enterprises be the winners in the competition for capital?

Our team has been closely monitoring (worldwide!) for news and opinions and research findings to help answer these and other questions and we bring you updates today. 

Thanks to G&A’s Editor-in-Chief Ken Cynar and Senior Sustainability Analyst Elizabeth Peterson for their continuous “captures” of many key items for the newsletter and for G&A’s themed web platforms.  We present the news, perspectives and research in the weekly newsletter and on our web platforms.

There are many more timely news and opinion items on our Sustainability HQ(tm) web platform for your reading – news is captured and posted every day in the categories presented in the newsletter as well as in other categories.  We invite your regular reading.

We are presenting the news of the efforts of companies to lend their support to the people in need by leveraging the corporate assets (and know how!). We’re presenting details of these efforts in this series of blog posts with hashtag #WeRise2FightCOVID-19 and grouped as “Corporate Purpose – Virus Crisis”. Thank you to all of the corporate leaders, managers and workforce doing their best in the crisis to help society.

The G&A Institute team members continue to all be “sheltered in place” working remotely and carrying on the work for clients.  It’s challenging but the good news is that the incredible advances made in technology are making a difference. 

Just imagine this virus crisis occurring in the days before email, private web-enabled networks, group teleconferencing tools, virtual meetings, the global internet ,and the “www” digital highway connecting us all around the world. 

A shout out here to the tech industry innovators who’ve made these tools available over the past three decades. 

And our heartfelt thank you to the men and women who today keep our society moving. Those stocking store shelves, keeping the lights on, policing our streets, responding to fire alarms and ambulance calls, keeping public transportation systems going, and many others working in silence or out of our sight.  A good number of companies are identified as essential business — people are working there every day, not at home.

And many thanks (in adequate word) to our brave first responders in the medical universe who put our needs first as they are exposed to danger. We are all in their debt.

We hope that this blog communication finds you well – please stay safe! 

For more content:  https://www.sustainabilityhq.com/

Five Featured Stories That
Provide Some Context in the Crisis

Coronavirus pandemic will drive responsible investing ‘skywards’   
Source: Financial Mirror – The coronavirus pandemic and its economic fallout will trigger a ‘skyward surge’ in sustainable, responsible and impactful investing over the next 12 months, according to Nigel Green, the CEO of financial advisory deVere Group,…

Are ESG and sustainability the new alpha mantra?   
Source: FT – When fund managers will start to think again about alpha-seeking strategies, as opposed to simply surviving the coronavirus, my bet is that more than a few will tell investors that sustainability and ESG-based screening will top…

COVID-19: A Rapid Human Rights Due Diligence Tool for Companies   
Source: BSR – The critical role of business during the time of COVID-19 is clear for everyone to see. Whether it is providing access to accurate information, continuing to pay hourly waged staff, or ensuring continuity of emergency supplies,…

12 Amazing Documentaries on Sustainability, Regeneration That You Now Have Time to Watch   
Source: Sustainable Brands – As many of us find ourselves with much more time at home due to the COVID-19 crisis, a lot of us are finding opportunities to do things we couldn’t quite get to in the course of our ‘regular lives’ before the widespread lockdowns.

Reserve management and sustainability: the case for green bonds?
Source: BIS – Central banks are playing an increasingly active role in promoting the move towards a sustainable global economy. One area in which they are thus involved is in guiding attempts to mobilise funds to contribute to the large-scale…

World’s Largest Sovereign Wealth Fund – an Investor Actively Engaged in ESG Issues Like Fossil Fuel Divestment…Quo Vadis, Norway SWF?

by Hank Boerner – Chairman, G&A Institute

Here at G&A the team monitors a sizeable number of asset owners (like pension funds CalPERS and New York State Common), asset managers (Black Rock, Morgan Stanley State Street), S&R investors (TIAA-CREF, Trillium, Calvert) and other kinds of institutional investors – including the growing universe of Sovereign Wealth Funds (SWFs).

A SWFis generally described as an asset fund that is state owned and managed, and investing outside of the home nation for the benefit of the population of the home state — and especially for future generations.  The oldest SWF is the Kuwait Investment Authority,  founded in 1954, and funded with oil revenues.

The largest SWF in terms of asset base has long been ADIAAbu Dhabi Investment Authority — established more than 30 years ago by the Emirate and now with US$800 billion-plus in Assets Under Management (AUM). .

Today, it’s a given that the #1 tittle is now held by Norway — the Government Pension Fund Global designed for investing outside of the country (there is a companion fund, much smaller, for investing inside the nation).

Let’s take a look at Norway’s SWF — established almost 20 years ago.  The “inflow” of money to invest comes from sale of the country’s North Sea oil and gas reserves; the government levies a tax of 78% on oil and gas production, and has income from other taxes and dividends from Statoil, the government-managed oil company.

The fund is managed by Norges Bank Investment Management, part of the financial ministry. Investments are primarily in stocks and bonds, a bit of real estate.

The New York Times profiled the SWF in June 2014; among the highlights: the SWF will be more aggressive over the next 3 years, taking larger stakes (5% of more) in companies; expanding the real estate portfolio; will be an “anchor investor” in capital raising; will continue to invest in smaller companies and emerging markets; will continue to look at “green investments.”  The fund has traditionally invested in Europe and North America markets.  Largest holdings are in such companies as Nestle, Novartis, HSBC Holdings, Royal Dutch Shell, Vodafone Group.

Norway’s SWF managers are reported to be looking for investments in companies that are involved in renewable energy, energy efficiency, water / waste water management, and related fields — for both equity and bonds (possibly “green bonds” investments).

Here is where things get interesting.  The flow of funds into the SWF to invest since 1996 has come from oil and gas activities.  Earlier this year a panel of experts was assembled to study the SWF’s investments in oil and natural gas and coal — “fossil fuels.”  Environmentalists and political interests want to see less/or no investments in fossil fuels.  Where the fund’s future funds come from!

More recently, The Financial Times profiled the SWF (November 3, 2014) — and the discussion involved not only the huge size of the fund, and its success in investing (helping to fuel the growth of average US$165 million each year) but also the “climate change” issue.  Soon the fund will be the first SWF to reach US$1 trillion in AUM.  Will those assets include fossil fuel companies?

Yngve Slyngstad (CEO of the fund) was interviewed by FT; he indicated the SWF will begin next year how it will vote ahead of corporate shareholder meetings, beginning with about 30 companies. (The fund owns shares in 8,000 companies; that means with an average of 10 proxy items to vote on, some 80,000 decisions are necessary before votes are cast this global fiduciary with considerable clout.)

The Norway SWF did cast votes against big names in the portfolio; managers don’t like the combination of chairman and CEO so prevalent in US companies, so it voted against Lloyd Blankfein of Goldman Sachs and Jamie Dimon, JP MorganChase for their combined roles.

CEO Slyngstad explained to FT that the SWF is not necessarily an activist investor and does usually support company boards of companies in portfolio, but the CEO and chair at companies they invest in should be separate people. Auditors should be rotated. And shareowners should be allowed to nominate board candidates.

And then the conversation got to climate change and fossil fuels. Should the Norway fund divest fossil fuel investments? Should it back more green (renewable) technologies? Should the fund be used as a diplomatic policy or environmental policy instrument?

In Norway, the fund is regularly the focus of political discussion.  The assets managed are larger than the country’s Gross Domestic Product.

Some politicians want to make changes in the investment policies. Climate change is central to some politico’s views.  The Times quotes Christine Meisingset, who heads sustainability research at Storebrand, who said: “As a country we are so exposed to fossil fuels, a risky position in the transition to a low-carbon economy. That makes the discussion around the oil fund so important.”

The fund does not invest in tobacco companies or companies involved in weapons manufacturing.  Will it soon divest investments in fossil fuel companies…even as fossil fuels “fuel the growth” of the SWF itself?

Stay Tuned to the discussion in the nation of Norway — the wealth generated for its citizens from deep beneath the earth (oil and gas reserves) and being available to the SWF for investment helped to create one of the world’s most important investment portfolios.  And the SWF as the country’s investment mechanism may be among the largest of the institutional investors heeding the call to divest fossil fuel companies (which compromise a tenth of the portfolio right now).

The climate change – global warming dialogue centered on portfolio management approaches regarding fossil fuel divestment continues to…well, “heat up!”