This Week: The 4 pillars of conscious capitalism, big ESG moves in Europe, Japan, Canada and Switzerland, Scotland tackles plastics.
The 2nd largest European custodian with EUR 3,955 billion of assets under custody, Societe Generale Securities Services (SGSS), has launched a new ESG system to gauge the impact of its investment strategies on the environment and society.
SGSS’s new ESG Reporting allows asset managers and investors to rate their investments against ESG criteria such as CO2 emissions, workforce management, producer responsibility, board compositions and executives’ salaries.
SGSS had already committed to the ESG space with its Sustainable and Positive Impact Finance which aims to deliver positive impact to one or more of the 3 pillars of ESG (Environmental, Social and Governance).
SGSS has been reporting on positive impact finance since 2012 and states that the amount of positive impact finance transactions more than tripled from 2012 to 2016, reaching € 2,244 M in 2016.
SGSS’s goals in fighting climate change in particular are to:
- Double the financing of renewable energy projects (€10bn) by 2020.
- Reduce carbon footprint by 20% between 2014 and 2020.
- Have ZERO financing of coal fired power or related infrastructure starting 2017: no new coal mines projects or related infrastructures.
“Asset managers are not only concerned about financial goals such as yield, security and liquidity but also -and increasingly- about their impact on society. The new service we offer will help our clients to make the right investment decisions to maximize their positive impacts.” – Bruno Prigent, Head of Societe Generale Securities Services.
Conscious capitalism and ethical investing have moved into the spotlight in Japan.
However, while Japan’s Environment and Social issues seem to be gaining more traction, its Governance policies are still a work in progress.
Japanese company culture sees regulations for disclosure and and outside direction as unwanted interference. A series of scandals this year at companies including Kobe Steel and Nissan confirm that there is a lot of work to do.
In 2015 the Government Pension Investment Fund (GPIF), with $1.3 trillion assets under management, signed the UN’s Principles for Responsible Investment (PRI). This year the GPIF went further by investing 3% of its holdings in Socially Responsible assets using ESG indices. Smaller investors have reportedly started to follow suit.
Meanwhile, the “look the other way” company culture of Kobe Steele hit headlines when the company announced that its workers had been tampering with product specifications for at least a decade.
Global clients, such as automakers and airplane manufacturers, have been left scrambling to make sure their products are safe. Kobe steel has a history of scandals and in 2006 was accused of illegal political funding to local candidates.
In October, Nissan recalled 1.2 million vehicles including all retail passenger cars it has produced in Japan over the last three years, after it found that uncertified technicians have been carrying out final inspections – for decades.
While companies may view Governance requirements as meddling, not only have these oversights cost both companies revenue, but they have also created serious safety issues.
Shinzo Abe’s focus on gender equality and environmental issues are commendable, but Japan clearly needs to spotlight the third leg of the ESG stool: Governance.
CIBC Asset Management Inc. (TSX: CM) (NYSE: CM), one of Canada’s largest asset management firms, with over $125 billion in assets, announced it has become a signatory of the United Nations-supported Principles for Responsible Investment (PRI). CIBC is already a Sustaining Member of the Responsible Investment Association of Canada.
“Our goal is to manage risk and deliver returns for our clients. That’s why thorough risk assessment, including an analysis of ESG factors, is fundamental to our approach to investing responsibly.” – David Scandiffio, President and CEO, CIBC Asset Management.
Switzerland’s Zurich Insurance, $190 billion in group investments, announced its goal to increase its impact investments from $2 billion to $5 billion. The aim of its impact investments is to reduce carbon equivalent emissions by 5 million metric tons a year.
In 2012 Zurich made a similar announcement to commit $2 billion to impact investing in green bonds. This year they fulfilled that goal, and have now decided to more than double their commitment to impact investing.
Insurers in Europe have been in the forefront in divesting from coal, among the dirtiest of all fossil fuels, and have pulled out $20 billion of investments.
In addition to adding more green bonds, Zurich plans to increase investments in Social and Sustainability Bonds in order to tackle issues just as poverty and inequality.
“We cannot do philanthropy, but we can obtain OK market returns, on top of that we are doing something good.” – Johanna Koeb, head of responsible investment at Zurich.
When John Mackey, the founder of Whole Foods Market, wrote Conscious Capitalism: Liberating the Heroic Spirit of Business, he described several businesses that have accomplished huge successes while giving back in some way.
Conscious capitalism is built on four basic pillars:
- Higher purpose: Businesses should have a purpose that is greater than simply making money to energize stakeholders in the business.
- Stakeholder orientation: A business needs to create value for all stakeholders (customers, employees, suppliers, investors, and their communities).
- Conscious leadership: Companies need inspirational leaders to encourage their workers to work for a greater goal.
- Conscious culture: The values, principles, and practices that guide a business should create an atmosphere of success for everyone.
In his book, Mackey outlines the success of company giants and what makes them adherents to conscious capitalism.
Costco – Provides low costs to customers without sacrificing the wellness of its employees.
Google – Makes information available and transparent, and crafting a workplace that encourages creative thinking and giving back.
Starbucks – Provides above-market pay and benefits for employees to foster a community its customers love to be part of.
Amazon – Cares more about its customers than perhaps any other retailer.
While the business practices outlined in Conscious Capitalism may not be a prerequisite for generating above-average returns, the businesses that adhere to them are a good space for investors who want to find the next market-beating stock and make a difference in the world.
Sir Richard Branson of Virgin has been rallying against plastic for sometime. In a recent blog post, he challenges England, Wales, Northern Ireland and governments around the world to follow in the footsteps of Scotland by introducing a Deposit Refund System for plastic bottles.
255 million plastic bottles every year are not recycled and every year 8 million tons of plastic end up in the oceans. Plastics not only gravely affect sea life, but are now found in seafood sold for human consumption.
Plastic bottles do not biodegrade. It takes approximately 450 years for them to break down in the ocean where they just fragment over time and enter the ecosystem, of which humans are a part.
Scotland’s Deposit Refund System will involve an extra cost levied on the purchase price of a packaged drink which is then refunded when the container is returned to a collection point for recycling. Scotland studied Norway’s current system which currently boasts a 96% return rate by customers.
“This is a brilliant opportunity to show further leadership to tackle plastic pollution.” – Richard Branson, Virgin
image source: Eleni Ross Photography