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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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Ping An Good Doctor Lures Big Public Asset Owners

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Ping An Good Doctor, formerly known as Ping An HealthCare and Technology Company, is a Chinese online healthcare platform that is part of Ping An Insurance (Group) Company. This unit is planning to be offered in a Hong Kong initial public offering that could raise as much as 8.8 billion HKD in shares at 50.80 or 54.80 HKD per share.[ Content protected for Sovereign Wealth Fund Institute Standard subscribers only. Please subscribe to view content. ]

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Temasek and Schneider Electric Eye L&T Electrical Unit

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Singapore’s Temasek Holdings and France-based Schneider Electric are in talks to acquire Larsen & Tourbo’s electrical and automation business. [ Content protected for Sovereign Wealth Fund Institute Standard subscribers only. Please subscribe to view content. ]

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CalPERS Allocates $1 Billion Internally to a Global ESG Strategy

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In February 2018, the California Public Employees’ Retirement System (CalPERS) allocated US$ 1 billion to an internally-managed QSI Global ESG strategy. The internally-managed strategy was developed by New York-based QS Investors, LLC, a subsidiary of Legg Mason. CalPERS entered into a 5-year contract with QS Investors, with a possible spend of over US$ 1 million per annum.

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