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Why ESG is Gaining Traction Among Institutional Investors

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Whether it is called sustainable investing or responsible investing, this concept of allocating capital that creates value for both the investor and society as a whole, has achieved traction among various institutional stakeholders in recent years. Commonly referred to as ESG investing (environmental, social and governance), a number of institutional investors are participating in the movement such as the New Zealand Superannuation Fund. In May, Australia’s Future Fund announced that it hired Joel Posters to head its ESG program. Already, the Future Fund is prohibited from investing in companies such as General Dynamics, Lockheed Martin and Singapore Technologies Engineering.

Moving beyond the screening process and usage of responsible investing principles, some institutional investors have hired ESG specialists to incorporate agreed factors into the decision-making process.

First Generation of ESG Strategy is Avoidance

Historically, application of ESG was conducted through a stock filtration process. Leading the early movements of responsible investing, pensions and church endowments, that focused on ESG, would screen out companies that were involved with areas such as gambling, human rights violations, defense companies and tobacco growers. Sovereign wealth funds like Norway’s Government Pension Fund Global and the Future Fund have adopted similar screening measures. In January 2014, Dutch pension juggernaut ABP let go of its investment in the Tokyo Electric Power Company, saying in a press release that, “During and after the nuclear disaster in Fukushima, the Japanese company structurally violated our standards [of responsible investing].”

According to ABP’s website, the pension giant sees itself as a long-term investor that views sustainable economic growth and ESG issues as key factors in investment analysis. As of June 1, 2014, the ABP excluded government bond investments from Somalia, Congo, Central African Republic, Sudan, North Korea, Iraq, Iran, Ivory Coast, Liberia, Libya and Eritrea.

Integration of ESG Factors in the Decision-Making Process

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Marina One and DUO Officially Open

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Khazanah Nasional Berhad and Temasek Holdings (Private) Limited announced the official opening of two major building projects, Marina One and DUO. Together the properties have a gross development value of 11 billion SGD. [ Content protected for Sovereign Wealth Fund Institute Standard subscribers only. Please subscribe to view content. ]

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SWFI First Read, January 16, 2018

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BP Plans to Take $1.7 Billion Charge to End Legal Claims on Deepwater Horizon

BP Plc is planning to take a US$ 1.7 billion charge to end legal claims regarding the disastrous 2010 Deepwater Horizon spill in the Gulf of Mexico.

Ethereum Co-Founder Leaves Fenbushi Capital

Vitalik Buterin, a co-founder of Ethereum, which is a cryptocurrency, exited China-based Fenbushi Capital. Fenbushi Capital was formed in 2015. Buterin is retaining his role as an advisor of Fenbushi Capital. Buterin dropped out of the University of Waterloo in 2014 when he got a Thiel Fellowship. This permitted him to work on Ethereum full time.

Kingdom Holding Sells Four Seasons Beirut Hotel Stake

Saudi Arabia’s Kingdom Holding sold its position in the Four Seasons Hotel in Beirut for roughly US$ 100 million. Blominvest, a unit of Blom Bank, advised on the transaction. The Four Seasons will continue to manage the property.

Mercer Signs Deal to Buy BFC

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Deutsche Bundesbank to Slowly Add Renminbi into Foreign Reserve Mix

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Deutsche Bundesbank’s executive board made a decision to invest in Chinese renminbi in the summer of 2017 as part of its foreign currency reserves. The German central bank on January 15, 2018, confirmed it will start investing in Chinese renminbi and also consider investing in additional foreign currencies. The move mimics the European Central Bank (ECB), which already considers the Chinese renminbi as a reserve currency. [ Content protected for Sovereign Wealth Fund Institute Standard subscribers only. Please subscribe to view content. ]

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