One of the key drivers of companies being operated in a more sustainable manner is pressures from investors. There is a growing trend that more and more investors are putting in ESG (Environmental, Social & Governance) factors into their investment risk assessments, factored into their investment decisions. Investors globally are getting more and more interested in getting companies to disclose more of their sustainable practices and performance, as some schools of thought would use sustainable practices as a proxy to good management and operational practices within their organisation.
There is an increased interest in global sustainable reporting programs such as the Carbon Disclosure Project (CDP) and the Dow Jones Sustainable Index (DJSI). The CDP itself, has signatories of 700 investors managing funds in excess of USD 80 trillion (source: CDP Website), and the numbers of companies responding to it has increased significantly over the years. Bloomberg terminals themselves have CDP data available for analysts to look at ESG data, which also shows the increase in demand for these sort of ESG info from analysts to make investment assessments.
The case study below, which I read in interest from the Star website serves to highlight the increasing trend of "Responsible Investors" globally. Would a publicly listed company take the risk of being divested by large investors globally if they are not operating in a sustainable manner? My question is, how did thei pension fund make their decision, and on what basis was it made?
Norwegian Govt Pension Fund Global divests out of 23 palm oil firms (source: The Star website)
http://biz.thestar.com.my/news/story.asp?file=/2013/3/11/business/20130311163536&sec=business
KUALA LUMPUR: The Norwegian Government Pension Fund Global (GPFG) disposed of its stakes in 23 Asian palm oil companies in 2012, including Kuala Lumpur Kepong and Genting Plantations.
The GPFG, which is the world's largest sovereign wealth fund, was reportedly to have also divested its stake in Astra International, First Resources, Golden Agri, Indofood Agri and Wilmar, according to JP Morgan Asia Pacific Equity Research.
In its research note on Monday, it said the GPFG had divested out of these companies, citing concerns about unsustainable palm oil production.
JP Morgan Research said the divestment was also played up by EU environmentalist groups, describing it as a victory against destructive practices on rainforests.
"GPFG sales appear to be a blanket sell-down of the sector without company specific consideration -- take the opportunity to accumulate good quality names," it said. JP Morgan said however, the environmental groups' accusations were not new for the palm oil sector and the stake sales by GPFG appear to be a blanket divestment across the sector without due consideration to company-specific plantation management practices.
“Notably, many companies in the sector have during the course of the past 2 years been increasing their proportion of RSPO certified plantations.
"Furthermore, it was reported that stakes in the companies mentioned have been divested completely in 2012, indicating that they would be no further overhang on stock prices from stake sale by GPFG from hereon," pointed out JP Morgan Research.
A news report by DPA said rising global share prices helped the Norwegian government's pension fund obtain its second-highest full-year result in 2012. The fund's return was 13.4%, equivalent to a rise of 447bil kroner (US$78.8bil). In 2009, the return was a record 26%.
The GPFG's market value rose 504bil kroner to 3.8 trillion kroner at the end of the year, although a stronger Norwegian krone weighed on the result.
The return on its equity investments was 18.1%, and gained in the second half of the year on moves by the European Central Bank calming concerns for the euro.
Europe accounted for 49% of the fund's equity investments at the year-end. North America's share was 31% and Asia 15%. It also invested in Oceania, Latin America, Africa and the Middle East.
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