ESG news
USS BANS TOBACCO, COAL AND WEAPON INVESTMENTS FROM PORTFOLIOS
The UK’s largest pension scheme by assets has for the first time pledged to remove companies operating in certain controversial industries from its portfolios. USS, the £75bn university workers’ pension scheme, is to exclude tobacco, thermal coal mining and cluster munitions as well as white phosphorus and landmines from its portfolios over the next two years.
The move is a significant turnaround for the scheme, which despite being an active shareholder has historically been skepti- cal of blanket bans on certain products or industries. David Russell, USS’ head of responsible investment, argued in 2018 that the scheme’s trustees were obliged to “invest in the best financial interests of its beneficiaries”. Therefore, because of the size of the scheme, a blanket ban on certain sectors would not be feasible.
USS said the new policy is part of a broader change in under- standing financial risk, as shifting political and regulatory atti- tudes could damage the prospects for business in these industries.
The recently amended requirements for the Statement of Investment Principles and the PCRIG guidance on TCFD reporting, to which Russell contributed, are indicators of the
increased regulatory focus on ESG in the scheme’s investment decisions. According to Ethics for USS, a member-led campaign supported by responsible investment pressure group ShareAction, the scheme currently has £1bn invested in fossil fuels. It also has a £400m exposure to tobacco and £200m tied up in weapon manufacturers.
USS did not provide a detailed list of companies it will remove from its portfolios but a gloomier financial outlook for some controversial stocks could have influenced this change in its investment policy.
The scheme said the decision was made after considering the long-term financial impact of certain holdings. USS manages 75% of its assets in house, making it easier to opt out of certain sectors, USS chief executive Simon Pilcher said. While tobacco and thermal-coal manufacturers are relatively easy to identify, the production of cluster munitions, white phosphorus and landmines are harder to track down as they are often made and sold via subsidiaries.
The production of white phosphorus is not outlawed because it has legal uses. Yet some institutional investors have taken a stand and have placed BAE Systems on their exclusion list due to it making smoke bombs that contain the chemical. Andrew Smith, a spokesperson for Campaign Against Arms Trade, welcomed USS’ decision and hopes others will follow.
BARCLAYS’ INVESTORS REJECT CLIMATE RESOLUTION IN FAVOUR OF BOARD’S PLAN
A coalition of institutional investors has been formed to improve the effectiveness of corporate lobbying on climate change.
The investors, which include Sweden’s AP7 pension fund, the Church of England Pensions Board and BNP Paribas Asset Management, have teamed up with research specialist Chronos Sustainability to establish a framework for measuring to what extent corporate lobbying practices are aligned with the Paris Agreement. Building on the work of how other research firms rate compa- nies on climate change practices, including InfluenceMap, the investor group hopes to establish a climate change rating framework by the autumn, which will be fed into the negotia- tions at the COP26 Summit in Glasgow next year. The framework aims to identify the different ways by which companies and their proxies exert influence over climate change policy. It also intends to separate the companies which are working to defuse policies from those which are not. Clare Richards, a member of the Church of England Pensions
Board, said “The stakes are high, and it is right that investors are working with and challenging companies to clean up their lobbying activities and demonstrate better practice.” This year’s AGM season has shown that climate change lobby- ing is increasingly moving up investors’ agenda. At ExxonMo- bil’s AGM on 27 May, United Steelworkers put forward a pro- posal to improve the disclosure of lobbying practices. The proposal highlighted that between 2010 and 2018, Exxon- Mobil spent more than $1bn (£806.4m) on US Federal lobby- ing and more than $3bn (£2.4bn) in 2018 alone on a campaign that targeted European institutions.
Shareholders suggest that the oil giant should disclose the recipients of these funds and how decisions on lobbying are made at a board level. While the proposal was rejected 62.5% to 37.5%, it nevertheless suggests that shareholder awareness of lobbying practices has increased. Two years ago, 73.8% of shareholders voted against a similar resolution. A recent report by InfluenceMap shows that in the three years following the signing of the Paris Agreement, the world’s five largest publically-listed oil and gas firms have invested more than $1bn in climate lobbying practices which counteracted the Paris Agreement’s aims.
Issue 94 | July 2020 | portfolio institutional | 27
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