Peter Lambert

Local Government Super (LGS) has reaffirmed its strong commitment to responsible and sustainable investing by enhancing its ‘negative screening’ approach to combat the future impact of climate change on its portfolios.

The latest changes to the already comprehensive and well-established LGS negative screen methodology incorporates an additional screen to exclude companies with a material exposure to ‘high carbon sensitive’ activities such as coal and tar sands mining, as well as coal-fired electricity generators. The threshold for this ‘high carbon sensitive’ negative screen has been set at a minimum of one third of company revenue.

According to Peter Lambert, LGS Chief Executive Officer, this decision was driven by the understanding that this sector will be adversely affected from an investment perspective by the likely transition to a lower carbon economy as governments respond to the increasing threat of climate change.

“Climate change is an unarguable scientific reality and one which poses a very real investment risk. Governments around the world have begun to act on climate change, which is having a negative impact on the future outlook for the coal industry. This focus will likely continue as coal companies become increasingly difficult to be relied on as a low-cost energy source,” Mr Lambert said.

“Coal and oil sands are the most carbon intensive forms of energy and most susceptible to carbon regulatory risks. With trends such as competitive pressures in the coal industry, concerns in China over pollution and water, and the introduction of energy and carbon efficiency standards on the utilities sector in the US indicating a shift away from a high carbon to a lower carbon economy, we believe that support for these sectors will decrease as will shareholder value.”

“In moving away from high carbon investments, we are supporting environmental and economic alternatives to investing in these sectors.”

“At the same time while the use of renewable energy will increase, it will not be able to meet all the energy needs around the world in a lower carbon future, so alternatives need to be considered. Because of this we have decided to remove the nuclear energy screen from our list of excluded industries, as we believe nuclear energy is increasingly becoming a viable, low carbon emitting energy source globally.”

“Nuclear energy is currently the only proven alternative to fossil fuels that provides baseload power capacity, so outright exclusion of nuclear energy directly conflicts with our view on the importance of reducing our reliance on high carbon energy sources.”

Local Government Super’s ‘negative screening’ approach has been applied and regularly reviewed since its inception in 2000. It is designed to actively screen out investment in tobacco, gambling, armaments and old growth forests, as well as excluding companies with poor management of environment, social and governance (ESG) risks.

Additional recent changes to LGS’ ‘negative screening’ approach include:

• removing the revenue threshold (to a zero threshold) for ‘controversial weapons’ (e.g. land mines and cluster bombs) and tobacco
• clarifying the definition of an excluded activity to that of manufacture and production only.

The changes to LGS’ ‘negative screening’ approach were approved by the LGS Board and are being implemented immediately. The approach is reviewed regularly and updated when required.

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Principal Real Estate Investors, the fourth largest institutional real estate manager in the United States, is among the greenest commercial real estate companies in the United States, according to Commercial Property Executive. The real estate publication’s annual ranking puts Principal Real Estate Investors in a class of companies forging the path for a sustainable future.

“It’s an honour to be recognised for our efforts in creating and implementing industry-leading green initiatives,” said Patrick Halter, chief executive officer of Principal Real Estate Investors. “We’ll continue to set the pace for institutional investors by optimizing building performance and reducing energy consumption.”

In 2010, Principal Real Estate Investors solidified a reputation for sustainable investment and property management with the Ten Pillars of Peak Performance, a program establishing environmental sustainability guidelines for property managers and joint venture partners that focuses on optimizing building performance and reducing energy consumption. More than 90 percent of the office buildings under management have completed some type of green building project, upgrade or improvement. This effort is projected to save approximately $12 million over the next eight years with minimal capital expenditures. The company’s focus on green initiatives has yielded impressive results:

• 3 percent reduction in energy consumption resulting in $1.2 million of savings.
• 24 buildings (more than 6.2 million square feet and $1.2 billion in value) are Leadership in Energy and Environmental Design (LEED®) certified, with an additional 68 buildings currently registered with the United States Green Building Council (USGBC) for LEED certification.
• Nearly 50 percent of the office buildings under management received the 2010 ENERGY STAR® designation and rank in the top 18 percent in the nation in building efficiency with an 82 overall ENERGY STAR rating.
• A company-wide commitment as an ENERGY STAR Partner to measure, track and improve energy performance.
• Becoming a signatory for the United Nations-backed Principles for Responsible Property Investment (RPI).

In 2009, Principal Real Estate Investors launched the Principal Green Property Fund I, LP, which is one of the first institutional commercial real estate funds to focus on investing in green properties. Additionally, the company’s core plus commingled fund ranked first among U.S. private property funds and sixth among global private property funds for corporate environmental policies and management2.

“Environmentally conscious building decisions offer investors a long-term competitive advantage over similar properties utilizing conventional practices and makes good business sense” said Halter. “The movement toward sustainable — or green — building practices is a structural change in the commercial real estate market, and we are committed to sustainable building practices throughout our portfolio.”

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The 2010 Full Year Report examines the role and influence of proxy advisers, at a time when corporate governance is being more heavily scrutinised.

Referring to the Report, AMP Capital Investors Director of Sustainable Funds, Michael Anderson acknowledges that the importance of proxy voting is underpinned by the fact that for many shareholders proxy voting is the only way to communicate with the public companies in which they invest.

“Australian shareholders have differing approaches to proxy voting ranging from a detailed hands-on approach to those having insufficient resources to analyse in depth. Especially in the latter situation, proxy advisers have the potential to put investors in a better informed position on important issues such as board composition, executive pay and company-changing transactions.”

While proxy advisers research and recommendations may be useful to investors, advisers are sometimes criticised for the quality of their research and immense power and influence, although AMP Capital believes conflicts of interest are rare.

“Australian proxy research is of a high standard, and continues to improve. Australian advisers do not generally provide corporate advice to the companies they report on so there is less likelihood of conflicts of interest. Provided the research is used thoughtfully, investors are often better off with the additional advice from proxy advisers,” Mr Anderson said.

In Australia the two main providers of proxy advice are ISS (Riskmetrics) and CGI-Glass Lewis. A large number of Australian institutions subscribe to the services of either, or both of these.

The Corporate Governance Report, which is released twice a year, provides a summary of AMP Capital’s corporate governance activity. AMP Capital takes seriously its responsibilities as an investment manager, as an agent of shareholders in companies and as a steward of its clients’ assets. The latest Report includes an analysis of the 2010 proxy season and reviews proxy voting and corporate governance issues.

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