Issue 22

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Issue 22 (May/Jun 2009)

More news, views, research and events from The London Accord and other organisations looking at issues where finance and investment interact with ESG policies. The London Accord created the first ‘open source’ resource enabling investors to manage risk and evaluate opportunities in these areas and facilitating those in the wider society seeking to produce market-based solutions.

News

Index-linked bonds the saviour of the carbon market?

Potential climate change investors have “one big doubt” whether governments are committed to de-carbonising the economy. Uncertainties surrounding government commitments create risks that developers of low carbon projects and their investors are not willing to bear.

Promoting good practice

The City of London Corporation (the local authority for the Square Mile) makes many claims to be unique or first but its work to anticipate and lead in those areas that enhance energy efficiency and carbon reduction are second to none in the public sphere.

Hermes supports London Accord aims

In a letter of support to The London Accord, Hermes Equity Ownership Services (EOS) said they had a shared view that climate change and its related issues are “of primary importance to long-term investors.” EOS works with a wide range of research providers to encourage them to take full account of climate change and would be happy to encourage these firms to make research reports available to The London Accord website after a suitable time period.

Companies not managing ESG risks effectively

Only a quarter of companies are adequately managing their environmental, social and governance (ESG) risks, according to new research from global responsible investment specialist EIRIS.

Investor responsibility – a gap in performance

Major UK pension funds are acknowledging the potential of ‘non-financial’ issues to affect investment values, but many still lack key strategies to manage these risks, according to a new research report from FairPensions. The report also raised questions about the fund management industry’s ability to meet clients’ changing requirements.

Setting the standard

Leading European corporate sustainability research organisations have recently launched a new international Voluntary Quality Standard (VQS) for corporate sustainability and responsible investment research.

Global trends and winners in CR reporting

Following the recent CR Reporting Awards ’08 (CRRA ’08), CorporateRegister.com has now published a report summarising and analysing global CR (corporate responsibility) reporting statistics producing some interesting conclusions.

Research

Testing for a safer world

The growing political will to measure and control the impact of industrial activities on the environment and public health & safety strengthens the role of verification, testing and certification players. This is due to three factors: the impetus for stricter global regulation in the areas of security, health and the environment; globalisation which makes the links between producer and consumer more complex and increases company risk; and the growing trend towards outsourcing these activities to private-sector players.

Political impact of climate change policies

The current economic crisis is likely to affect political momentum on climate change, but energy security concerns are boosting support for many climate change-related investment themes. Cheuvreux provides a prospective analysis of the political forces driving the ongoing review of the climate and energy package that will enact the CO2 constraint in the EU by 2020. At stake is a wealth transfer estimated at ~€440 billion (US$574 billion) between 2013 and 2030 from EU industries to governments, taking the form of CO2 rights auctions.

Carbon ETS forecasts …

Over the medium-term, new London Accord member Daiwa expects increasing emphasis on emission reduction, but budgetary control and corporate well being are likely to take short-term precedence. The Kyoto Protocol has been ratified by countries representing only around 30% of the world’s greenhouse gas emissions and does not include the US or China, the two biggest emitters. Of those countries that have ratified the treaty currently about half are scheduled to miss their 2012 emission reduction targets.

… will the carbon price recover?

Since Daiwa’s December 2008 Carbon Report above, the EUA December 2009 forward price has fallen from €16/tonne to €10/tonne as weakening economic conditions have reduced European industrial output and EU ETS industrials have sold forward allowances to raise finance at relatively attractive rates. Carbon price movements have become detached from oil prices. With around half of the EU ETS emissions accounted for by the non-power industrial sector (oil, building materials, metals and paper), industrial output from these sectors will in the short-term be a greater driver of emissions reductions than the power generation sector.

Decline in 2008 ETS emissions

After analysing the full-year fuel mix in the power sector in a number of key countries Deutsche Bank now expects a year-on-year decline of 5.2% in 2008 ETS emissions to 2,120Mt from pro-forma 2007 emissions of 2,237Mt. The very weak outlook for EU industrial output in 2009 and the ripple effect of this on 2010-12 forecasts means expectations of a slight surplus of EUAs over Phase 2 as a whole. The EU economy has deteriorated rapidly since late summer 2008. Industrial output for the Eurozone in January 2009 showed a year-on-year contraction of 17.3%, while EU steel output in February was down 42% against that of February 2008. A 3% contraction in the GDP of the EU’s biggest economies in 2009 is forecast.