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Ex-chair of world’s biggest pension fund sounds caution on ESG

Ex-chair of world’s biggest pension fund sounds caution on ESG

The ex-chair of the board of the world’s largest pension fund, who oversaw its $1.7tn portfolio as it became a pioneer of responsible investment, has warned the institution to remember its core duty to Japanese pensioners: returns.

“The GPIF [Government Pension Investment Fund] must always go back to its investment purpose,” says Eiji Hirano, who stood down from the job three months ago. His comments reflect concerns that too great a focus on environmental, social and governance (ESG) standards can add risk, including a possible collision between the law and the investment philosophy under the GPIF’s previous regime.

According to the law under which the GPIF operates, it must invest with the sole purpose of benefiting Japanese citizens through the returns generated. And Hirano says GPIF is well aware of that obligation — emphasising that he does not think it has strayed from that principle since he left.

But he adds: “There is always a potential danger that GPIF money is misused,” stressing that the fund’s board should now be especially determined to act as a guardian against that.

Though carefully framed, Hirano’s comments highlight increasingly urgent questions over the future direction of the GPIF since the departure in March 2020 of its charismatic chief investment officer Hiromichi Mizuno. He was replaced by the more reclusive and media-shy Eiji Ueda, a former Goldman Sachs bond trader.

The Mizuno revolution

During Mizuno’s five-year tenure, he sought to turn the once sleepy-looking GPIF into a global symbol of more modern Japanese thinking. His time there roughly coincided with the arrival of Japan’s stewardship and governance codes. These new guidelines were designed not only to precipitate practical changes in corporate Japan, but also to reinforce the idea that the country’s equity market was tackling some of the problems that had tarnished its reputation among both foreign and domestic investors.

Despite strict constraints on how the fund can operate — for example, it is unable to hold individual stocks and therefore cannot directly vote on companies’ policies — Mizuno was able to use the GPIF’s choice of external fund managers to project a tough stance on governance shortcomings at Japanese companies.

Charismatic: Hiromichi Mizuno championed ESG principles during his tenure as chief investment officer
Charismatic: Hiromichi Mizuno championed ESG principles during his tenure as chief investment officer © Reuters

While this was happening, the GPIF pressed ahead with a historic — and still internally controversial — rebalancing away from government debt and towards stocks. It now splits its investment roughly equally between domestic and foreign bonds and domestic and foreign equities. These weightings will be revised again in 2025, and there is already speculation that the fund’s exposure to domestic Japanese equities may be reduced then.

But arguably Mizuno’s boldest achievement, which he proselytised about at Davos and other global financial forums, was yoking the GPIF name to the then fledgling theme of ESG investing. The campaign included what Mizuno himself described as the “epochal” decision to mandate index-compilers FTSE and MSCI to create ESG indices for the GPIF. It sent the message that the GPIF under his stewardship would regard ESG factors as financially relevant.

But not all agree that the non-financial outcomes being pushed via ESG investment translate directly into the financial outcomes the GPIF is legally obliged to prioritise.

Shorters v stewards

A significant clash came in late 2019 when Mizuno announced that the GPIF would stop lending its global equity stocks to short sellers — who bet on share price falls. Although the move was controversial, prompting fierce debate within the fund because of the forgone revenues, Mizuno — who last year joined the board of Tesla, the carmaker led by outspoken anti-shorter Elon Musk — argued that the practice was antithetical to ESG principles.

“I never met a short seller who has a long-term perspective,” Mizuno told the Financial Times then, adding that he felt comfortable with the decision because it represented a choice between making cash immediately or being “better stewards for our constituency”.

Mizuno is also proud of adding two new concepts to the lexicon of ESG fund management: universal ownership and the cross-generational investor.

He explained to reporters earlier this year that the GPIF is so big that it essentially owns the whole investable “universe”, which means its focus should be “making the whole market better” rather than attempting the mathematically difficult feat of beating the market.

 

More stories from this report

 

As for the cross-generational investor, Mizuno said the idea is necessary to emphasise the long-term nature of ESG strategies.

Hirano, however, sounds a cautious note in his conversation with the FT. While agreeing that it is important to correct the market bias towards short-termism, he points to several outstanding concerns about the ESG narrative. These include the lack of a common evaluation system and a tendency to stress the environmental over the governance part of ESG.

He also admits to feeling uneasy about the large number of chief executives who emphasise the importance of ESG principles or the UN’s sustainable development goals.

The focus may be right, he says, but delivery depends on the still unproven determination and perseverance of all those leaders.

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Indonesia’s B40 biodiesel plan faces new delay due to palm price

Indonesia’s B40 biodiesel plan faces new delay due to palm price
PHOTO by REUTERS

Indonesia’s plans to raise the mandatory bio-content in its palm oil-based biodiesel to 40per cent may face further delays, after the high price of the vegetable oil has made the programme too costly, a senior government official told Reuters.

Indonesia, the world’s largest palm oil producer and exporter, has a mandatory biodiesel programme with 30per cent palm oil content, known as B30, but intends to expand the use of the oil for energy to save on fuel imports.

Authorities had planned to increase the mix to 40per cent in July this year, but the timetable for the B40 programme is now unclear.

“We don’t have a timeline yet for B40, although from the technical side, we’re ready,” Dadan Kusdiana, a director general at the energy ministry, said in an interview. He said implementing B40 in 2022 will be “challenging”.

Indonesia funds its biodiesel programme with proceeds from palm export levies.

However, authorities have revised levy rules three times since last year as they sought to support the biodiesel programme after prices soared, but without hurting exports.

Malaysian palm oil futures hit a record of 4,560 ringgit (US$1,089.35) a tonne on Aug. 12 and have been trading around 4,300 ringgit recently, about 60per cent higher than a year earlier.

Dadan said 45 trillion rupiah to 46 trillion rupiah (US$3.1 billion-US$3.2 billion) is needed this year to fund the difference between using regular diesel and the palm-based fatty acid methyl ester (FAME) for B30.

If prices stayed constant, mixing 40per cent FAME would require around 60 trillion rupiah (US$4.16 billion), he said, while noting adopting B40 would likely boost palm oil prices by shrinking global supply, making the programme even more expensive.

“That is what we’re considering, how capable are we in terms of the levies. We have to provide bigger financing, but it doesn’t have to come from higher levies,” Dadan said, without elaborating on alternatives.

The Indonesian Palm Oil Association (GAPKI) had already said in January it expected B40 to be delayed beyond 2022.

On the technical side, Dadan said the water and monoglyceride contents in FAME must be reduced for B40 to work, requiring new investment by biodiesel producers.

Although biodiesel promises lower emissions, the use of palm oil as a feedstock raises concern about deforestation in the clearance of land to grow it. The European Union is planning to phase it out as fuel for transport.

(US$1 = 14,425.0000 rupiah)

(US$1 = 4.1860 ringgit). REUTERS

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Indonesia central bank anticipating risk of rising inflation in 2022: Governor

Indonesia central bank anticipating risk of rising inflation in 2022: Governor

Indonesia’s central bank expected inflation to be within its target range of 2 per cent to 4 per cent in 2021 and 2022, but warned of potential price pressures next year, Governor Perry Warjiyo said on Wednesday (Aug 25).

“We need to anticipate a risk of rising inflation in 2022, in line with a rise in domestic demand and increasing global commodity prices,” he told a coordinating meeting on inflation management.

Indonesia’s annual inflation rate has stayed below BI’s target range since June of 2020 as the coronavirus pandemic dampened domestic consumption.

July’s rate was 1.52 per cent. REUTERS

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Dollar settles near 4-1/2 month highs as risk appetite cools

Dollar settles near 4-1/2 month highs as risk appetite cools
An exchange office clerk counts U.S. dollars. Onur Coban/Anadolu Agency/Getty Images

The dollar held near a 4-1/2 month high versus a basket of major currencies on Wednesday as simmering concerns about the global economy forced investors to seek safety in the greenback before the release of the Federal Reserve’s July meeting minutes.

Sterling and the commodity-exposed Australian and Canadian dollars all hovered near recent lows against the dollar as the broad market mood remained cautious. The dollar index held steady around 93.09, just below an early April high of 93.20 hit last week.

“The FX market is trading exactly as one would expect when growth worries are the dominant theme,” said Marios Hadjikyriacos, a senior investment analyst at XM.

Even the New Zealand dollar, which briefly rose after the central bank set out a hawkish outlook for interest rates, swooned as a mild wave of risk aversion swept through markets.

The Kiwi was down 0.5per cent at US$0.6888 in London trading having risen earlier to US$0.6952 after the Reserve Bank of New Zealand said it would keep rates at 0.25per cent, after the country was put into a snap COVID-19 lockdown.

A monthly fund manager survey by investment bank BoFA Securities showed that investors flipped to a net overweight on the dollar for the first time in nearly a year.

That shift in positioning was evident in more high-frequency weekly data as well with hedge funds ramping up their net long bets on the greenback to the most since March 2020.

While the dollar failed to draw any sustained strength from Fed Chair’s Jerome Powell’s comments and mixed U.S. data, markets shifted focus towards the annual Jackson Hole symposium next week where some expect the Fed to signal a change in direction with regards to its asset purchase plans.

U.S. retail sales fell 1.1per cent in July, more than economists expected but industrial production numbers showed that output at U.S. factories surged in July. and

Elsewhere, the Canadian dollar hovered near a one-month low. [CAD/]

In cryptocurrencies, bitcoin traded at US$45,244, not far from Saturday’s three-month high of US$48,190. Ether stood at US$3,042. REUTERS

 

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Tencent Music posts over 15per cent rise in quarterly revenue

Tencent Music posts over 15per cent rise in quarterly revenue
Tencent submitted a proposal to separately list its subsidiary Tencent Music. NIKKEI

China’s Tencent Music Entertainment Group posted a 15.5per cent rise in quarterly revenue on Monday, as its advertising business rebounded and more people subscribed to its music streaming platform.

Total revenue of the Tencent Holdings Ltd-controlled company rose to 8.01 billion yuan (US$1.24 billion) in the second quarter. Analysts were expecting revenue of 8.13 billion yuan, according to IBES data from Refinitiv.

(US$1 = 6.4742 Chinese yuan renminbi). REUTERS

 

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Credit Suisse brings in former UBS executive to head risk committee

Credit Suisse brings in former UBS executive to head risk committee
A Swiss flag flies over a sign of Swiss bank Credit Suisse on May 8, 2014 in Bern. AFP/Getty Images/Fabrice Coffrini

Credit Suisse has drafted a former Chief Operating Officer of UBS and heads the Risk Committee of the Board of Directors. The new chair, Antonio Orta Osorio, has been strengthening the bank’s defenses following a series of scandals.

Axel Lehmann, who left UBS in January, will join Credit Suisse’s board of directors on October 1. Juan Columbus, who played a risk role at Lloyds Banking Group and Alter Osorio’s Santander, will also join Credit Suisse’s board of directors.

Credit Suisse’s reputation for risk management has been hit this year by two crises surrounding professional finance firm Greensill Capital and the family office Arquegos. In two incidents, Credit Suisse liquidated a $ 10 billion investment fund, losing $ 5.5 billion in the worst transaction loss in 165 years of history.

NS Damn report Regarding the loss of Arquegos announced last month, it describes the “fundamental failure of management and control” and “lazy attitude toward risk” at Credit Suisse’s investment bank.

Alter Osorio, who escaped Lloyds from the financial crisis, Join Credit Suisse Board of Directors In April, he said the bank’s plight was the worst he had ever seen in his career. He also promised an urgent review of risk management, strategy and culture. The final details of the review are scheduled by the end of the year.

On Friday morning, Alter Osorio said the proposed appointment of Lehman and Columbus to the board would help strengthen Credit Suisse’s risk management.

“With both deep experience in risk management and business leadership and a career of nearly 30 years in financial services, they are in shaping the strategic restructuring of banks and strengthening the culture of risk management and personal responsibility and accountability. Will make an immeasurable contribution. “He said.

Lehman was Chief Operating Officer of UBS and President of Private and Corporate Banks. His career at UBS and earlier in the Zurich Insurance Group included several risk management roles.

Columbus was Lloyd’s Chief Risk Officer and Chief Operating Officer from 2011 to 2020. Previously, he was Executive Director and Chief Risk Officer of Santander’s UK operations. He has been a member of ING’s Audit and Risk Committee since 2020.

Andreas Gottschling resigned from his role as Chairman of Credit Suisse’s Risk Committee in April after several major shareholders have shown that they will do so. Vote against his reelection..

Richard Meddings, TSB Bank’s executive chair, has been the Interim Chairman of the Credit Suisse Risk Committee since April. He will continue to lead the bank’s audit committee.

Last month, Credit Suisse Hired David Wildermas, Former Deputy Risk Officer and Chief Risk Officer of Goldman Sachs. Wildams will move from New York to Zurich to take up his new position by February 2022.

Credit Suisse brings in former UBS executive to head risk committee Source link Credit Suisse brings in former UBS executive to head risk committee. FT

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Global shares mixed as caution sets in on coronavirus worry

Global shares mixed as caution sets in on coronavirus worry
A woman wearing a face mask is reflected on an electronic foreign currency exchange rates in downtown Seoul, South Korea, Thursday, Aug. 12, 2021. Asian shares were mixed Thursday as caution set in among investors following another wobbly day of trading on Wall Street. AP Photo/Lee Jin-man

Global shares were mixed Thursday as caution set in among investors after banks and industrial companies helped lift stocks mostly higher on Wall Street.

France’s CAC 40 inched up less than 0.1% to 6,860.88 in early trading, while Germany’s DAX was virtually unchanged at 15,826.76. Britain’s FTSE 100 slipped 0.2% to 7,205.48. U.S. shares were set to be mixed, with Dow futures up nearly 0.1% at 35,398. S&P 500 futures inched down less than 0.1% to 4,439.25.

Japan’s benchmark Nikkei 225 edged down 0.2% to finish at 28,015.02. South Korea’s Kospi slipped 0.4% to 3,208.38 after seesawing earlier in the day. Australia’s S&P/ASX 200 ended up less than 0.1% at 7,588.20. Hong Kong’s Hang Seng declined 0.5% to 26,517.82, while the Shanghai Composite fell 0.2% to 3,524.74.

Worries continued in the region about the recent regulatory crackdown in China. Analysts said the next target appeared to be the online insurance industry.

“This comes amid increasing COVID-19 risks, with further tightening of restrictions in several cities potentially impacting the services sector near-term,” said Yeap Jun Rong, market strategist at IG in Singapore.

COVID-19 infection cases are also surging in Japan, where a state of emergency has been in place, even as the nation hosted the Tokyo Olympics and plans to do the same for the Paralympics, which open later this month. New cases are reaching record highs in Tokyo and several other regions. Medical officials say hospital facilities are getting stretched thin.

“On the COVID-19 front, worries over growing restrictions are becoming a cause of concern. Growth expectations in the region will likely take a hit in the coming weeks. The recent resurgence of the virus will probably slow the economic recovery,” said Anderson Alves, a trader at ActivTrades.

After a stumbling start to the week, stocks have been moving higher on the back of strong earnings and better-than-expected economic data. Investors’ concerns about inflation and uncertainty about the U.S. Federal Reserve’s future plans to ease up on its support for low interest rates have been hanging over the market.

While the headline figures may seem bad, most of the rise in consumer prices has been tied to very specific goods that are not expected to impact the long-term health of the economy, like used cars, building materials and hotel rooms. These items came into short supply during the pandemic, and the increased economic activity has made prices for them rise faster than usual.

The Federal Reserve has repeatedly said it believes any increase in inflation would be temporary and largely a result of supply disruptions that happened because of the pandemic. Investors will get another inflation snapshot Thursday, when the Labor Department issues its July wholesale price data.

In energy trading, benchmark U.S. crude fell 4 cents to $69.21 a barrel. Brent crude, the international standard, edged up 1 cent to $71.45 a barrel.

In currency trading, the U.S. dollar slipped to 110.40 yen from 110.41 yen. The euro cost $1.1740, up from $1.1738. AP

 

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