Sovereign Wealth Fund Weekly News Roundup — SWFs Grapple With ESG Issues

July 03, 2015 by Loch Adamson

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The sovereign wealth funds of New Zealand and Norway were both faced with environmental social and governance issues this week. And several funds published their annual reports.

Doing Well By Doing Good?

Norway’s $870 billion sovereign wealth fund Government Pension Fund Global was criticized this week for failing to monitor governance standards at companies it invests in. Representatives of Sweden's shareholder association and AP4, one of the country's pension funds, challenged Norges Bank Investment Management (NBIM), the arm of the central bank that manages the giant fund, over its investment in Svenska Cellulosa Aktiebolaget (SCA), a Stockholm-based paper company in which it owns an 8 percent stake. SCA is embroiled in a corruption scandal centering on alleged abuse of expenses claims by company executives. NBIM approved a motion at SCA’s annual meeting in April that discharged directors of personal liability for management of the company’s affairs shortly before news of the scandal emerged.

And a Norwegian NGO has called on the NBIM to divest its nearly $1 billion stake in Atlanta-based Coca-Cola Company. In a report, Oslo-based Foreningen for Internasjonale Vannstudier (the Association for International Water Studies) says NBIM should sell its shares in the soft drink company because of its practices in India, which it says have depleted local water supplies and led to shortages. FIVAS says these activities contravene NBIM's guidelines on sustainable water management for the companies it invests in.

The double-barreled criticism illustrates the challenges funds face in trying to implement environmental, social and governance (ESG) policies. The $21.5 billion New Zealand Superannuation Fund has brought in external help — on Tuesday it announced the appointment of Toronto-based BMO Global Asset Management to help it engage with portfolio companies on such issues. BMO will ensure the companies NZ Super invests in are complying with the fund's ESG guidelines. BMO will also provide two other New Zealand public pension funds — the Accident Compensation Corp. and the Government Superannuation Fund — with similar services as part of the agreement.

A Flurry of Annual Reports

Annual report season is in full swing — with four sovereign wealth funds disclosing their financials this week. The reports make for a mixed bag.

China Investment Corp. (CIC) revealed it managed assets of $746.7 billion as of December 31, 2014, up from $653 billion a year earlier, with net income rising 2.5 percent to $89.1 billion. However, returns on overseas investments declined for the second year running to 5.47 percent, down from 9.3 percent in 2013. 

Investment Corp. of Dubai (ICD) said its profits were up 63 percent in 2014, thanks to strong performance at its portfolio companies, such as Emirates Group, the aviation giant. ICD managed assets of $183 billion as of December 31, 2014. The International Petroleum Investment Co. (IPIC), of neighboring Abu Dhabi, fared worse — the fund’s profits declined by 37 percent in 2014 as the fall in oil prices dragged down its earnings. IPIC’s overall assets stood at $66.4 billion at the end of 2014, down from $68.4 billion a year earlier. The fund attributed the decline to its use of cash to reduce its liabilities.

The Alberta Heritage Savings Trust Fund (AHSTF), the Canadian province's sovereign wealth fund, returned 12.5 percent in the fiscal year 2015, which ended on March 31. AHSTF's latest annual report shows that Alberta Investment Management Corp., which manages the fund, increased its allocation to alternative assets from 27 percent to 29.7 percent of its portfolio. AHSTF's assets stood at C$17.9 billion as of March 31, 2015, up slightly from C$17.5 billion a year earlier. In U.S. dollar terms, however, the fund’s assets declined from $16.3 billion to $14.1 billion, reflecting the strength of the currency over the reporting period.

GIC Invests in Indian Property

Singapore’s GIC added to its Indian property portfolio this week. Brigade Properties, a joint venture between the $342 million sovereign wealth fund and Bangalore-based real estate developer Brigade Group, reportedly purchased a plot of land near the Indian city of Chennai for 5.5 billion Indian rupees ($86.3 million). The partners are reportedly planning to develop a mixed-use retail and residential complex on the site, similar to their Brigade Gateway project in Bangalore.

GIC also allocated capital to Mumbai-based mortgage lender Housing Development Finance Corp.’s new $500 million real estate fund. According to local media sources, GIC invested alongside the $34.4 billion State General Reserve Fund of the Sultanate of Oman. The new fund will finance the development of affordable housing across India.

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