Thursday, November 13, 2014

SHARE releases ESG concerns regarding Tim Hortons/Burger King merger

SHARE this week released a proxy advisory regarding environmental, social and governance (ESG) issues that may be of concern to shareholders in the Tim Hortons-Burger King merger proposal. 

 

In a joint proxy circular issued earlier this month, Tim Hortons and Burger King Worldwide described details of a deal touted as the largest restaurant merger in history, creating a post-merger entity with combined global sales of $23 billion and with 18,000 restaurant locations in 98 countries.


After analyzing the currently available information on the proposed merger, SHARE has identified certain ESG issues that may be of concern to shareholders of a successfully merged new entity, including:
  • Inherited reputational risks from BKW’s U.S. employment practices
  • Differences in sustainability reporting between the two companies;
  • Potential job losses and decreased tax contributions;
  • Lack of independent directors;
  • Excessive executive compensation
Environment

Tim Hortons has published comprehensive sustainability reports in recent years, achieving a B+ level of reporting based on the Global Reporting Initiative (GRI) framework. Burger King, however, does not release annual sustainability reports. To date, there have been no specific commitments from Tim Hortons or its new owners regarding the continuation of GRI-based sustainability reporting. 

Social

A prominent national campaign in the U.S. has targeted the fast food industry for the extremely low wages paid to employees. In addition, the National Labor Relations Board recently censured a large Burger King franchisee for its anti-union activities.

Concerns have also been raised about cuts to operational costs by 3G Capital, Burger King’s owner, which could take the form of hundreds of layoffs at Tim Hortons’ head offices and distribution centres, considering 3G’s pattern of similar losses which occurred at Heinz and Labatt plants after takeovers by 3G Capital.

Governance

3G Capital has a history of poor corporate governance; BKW’s board does not have a majority of independent directors, has no nominating committees, and other key committees, such as the compensation committee, are entirely composed of insider directors. By contrast, at least two-thirds of the current Tim Hortons board are independent directors and its audit committee is entirely independent.

Conclusions

The proposed merger may raise ESG concerns for long-term investors who will now be faced with new governance structures and practices as well as new risk profiles based on ownership of Burger King’s global operations.
·          

  • SHARE asks if the combined company will continue and expand THI’s practice of issuing regular sustainability reports for investors based on GRI indicators.
  • How will reputational risks from Burger King’s employment practices in the U.S. impact on the combined company’s value?·    
  • Will 3G Capital and Burger King be making specific commitments regarding retention of employees at company-controlled facilities in Canada?·      
  • What will be the merged company’s approach to Canadian taxes?
  • Will the company commit to nominating independent directors to at least two-thirds of the board of the new company after the merger?
    ·           
All good questions from SHARE and ones investors deserve answers to.

Thursday, October 9, 2014

Eurosif Study Reveals Double Digit Growth in SRI Strategies

Eurosif's sixth study of sustainable and responsible investment in Europe shows that SRI investment strategies have grown at double digit rates between 2011 and 2013, faster than the broader European investment market.

For example, the study reveals that assets subject to exclusion criteria, also known as negative screening, grew by 91% between 2011 and 2013, and now cover an estimated 41% of European professionally managed assets. Voluntary exclusions related to cluster munitions and anti-personnel landmines are the most common.

Assets subject to engagement and voting policies have grown by 86% over the period to reach 3.3 trillion euros, versus 1.8 trillion euros in 2011. Half of that growth comes from the U.K., with other key contributors being the Netherlands, Norway and Sweden. 

Impact investing is the fastest growing strategy, the study reveals, with 132% growth since 2011. Impact investing is now a 20 billion euro market. Key markets for this strategy are the Netherlands and Switzerland, representing an estimated two-thirds of European assets, followed by Italy, the United Kingdom and Germany. Microfinance represents an estimated 50 % of European impact investing assets.

The study also sheds light on how the integration of non-financial factors into investment decisions is implemented. All forms of ESG integration have grown by 65% since 2011, making this one of the fastest growing strategies.

Despite the impressive growth of the SRI market, the study highlights a number of market failures such as the wide variations in adoption of SRI practices across countries and the weakness of the retail SRI market. Institutional investors continue to drive the SRI market in Europe with an even higher market share than in 2011.

Data was collected or estimated at the end of 2013 covering institutional  and retail assets from 13 distinct European markets. 





Thursday, September 25, 2014

Montreal Carbon Pledge Attracts Large Institutional Investors

A group of large institutional investors have signed on to the Montreal Carbon Pledge, agreeing to measure and publicly disclose the carbon footprint of their investment portfolios on an annual basis.

Overseen by the UN-backed Principles for Responsible Investment, the pledge hopes to attract $3 trillion of portfolio in time for next year’s UN climate change conference.

"We are proud to launch the Montreal Carbon Pledge, a commitment by investors to translate climate talk into walk," said Fiona Reynolds, Managing Director of the Principles for Responsible Investment. "The first step to managing the long-term investment risks associated with climate change and carbon regulation is to measure them, and this initiative sets a clear path forward."

Carbon footprinting enables investors to quantify the carbon content of a portfolio, the PRI said, noting that 78% of the largest 500 publicly listed companies now report their carbon emissions.

Eight funds are inaugural participants in the Montreal pledge, including the $298 billion California Public Employees’ Retirement System and France’s public sector pension plan known as ERAFP. The only Canadian fund to commit so far is Montreal-based B√Ętirente, which manages $1.2 billion in assets.

Batirente chief executive officer Daniel Simard said the pledge is the next step in the fund’s commitment to socially responsible investing.

“We think we must move to a new stage in responsible investment, and that is about capital allocation,” he said in an interview with the Globe & Mail. “For us, measuring our footprint means considering reducing our carbon footprint. So we will need to see how we can rethink our asset management in these terms.”

Toby Heaps of Corporate Knights told the Globe a number of Canadian investors have been reviewing the pledge and may sign on, including the Canada Pension Plan Investment Board, which said it is assessing the new initiative.

Friday, September 12, 2014

Banks showing limited commitment to responsible investing



Despite the growth in responsible investment as reported by various sustainable investment forums, such as Canada’s Responsible Investment Association, the uptake of responsible investing in the banking sector leaves much to be desired, according to an extensive report on banking from RI research firm Sustainalytics.

Only 7% of banks surveyed by Sustainalytics report that the share of responsible assets is more than 5% of total assets under management. Nearly all of these institutions are from Europe, with three from North America and one from South America.

Another 96 institutions (27%) either have less than 5% of AUM dedicated to RI assets or do not disclose the value of their RI assets. Two hundred and forty-one institutions (67%) don’t provide any evidence of RI assets under management.

Further, just 20% of the banks around the world surveyed by Sustainalytics are PRI signatories. And only 27% have published some kind of responsible investment policy.

Only 6% of banks live up to Sustainalytics highest requirements, which include the application of at least two out of three RI strategies: exclusion, best-in-class and engagement. 

“While a number of banks are engaged in RI, the majority of them are not PRI signatories, do not have RI policies in place and have not disclosed responsibly management assets,” the report says.

The report notes that the banking industry supports a wide range of sustainability related products and services, including green consumer loans, rebates for energy efficient home retrofits, large scale renewable energy project and green bonds.

In fact, 72% of banks assessed on this indicator have disclosed programs or activities to promote sustainability-related products and services, mostly in the form of clean energy financing and consumer loans. Eleven banks stand out for setting quantitative targets to expand sustainability financing commitments within a specific time frame.