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News May 2003
The following are summaries of news stories that appeared in the May 2003 print edition of Environmental Finance magazine
Investors look to influence climate change policy
A group of 11 European institutional investors is turning to the public policymaking process to “understand and influence” the development of climate change policies.The Institutional Investors’ Group on Climate Change (IIGCC) is to embark on “a programme of dialogue with policymakers” in a move that could, ultimately, see them lobbying for action to address climate change risks.
“Investors need to be up to speed with the nature of climate change policy and its investment implications,” says Nick Robins, head of socially responsible investment research at Henderson Global Investors, a UK-based asset manager, and chairman of the IIGCC’s working group on public policy. “We need to engage with policymakers to communicate our needs and concerns as others do,” he adds.
ICAP sets up US weather shop
Colt Heppe, formerly head of weather trading at United, has set up a New York-based weather derivatives desk at rival London-based broker ICAP. Heppe, who left United at the end of March, brings his colleague Bill Mahoney and plans to expand the new desk.
“We intend to expand as the market permits us,” Heppe says. My intention is to take the global presence and resources of the largest financial broker in the world and direct it at the emerging weather markets.”
Business ethics pay, says IBE
Companies that follow a code of ethics financially outperform those that do not, says the London-based Institute of Business Ethics (IBE), in a study of some of the UK’s largest companies. Its April report Does business ethics pay? found that companies with established codes of ethics generated profits 18% higher on average, and with more stable price/earnings ratios, than those without.
IBE selected two similarly-sized groups of companies with and without codes of ethics from the UK’s FTSE 350 for the study. It then measured their performance from 1997 to 2001 against four economic indicators – market value added, economic value added, price/earnings ratio and return on capital employed. The group with codes of ethics outperformed on all but the final indicator. IBE will not disclose the companies selected for the study but says they represent a broad range of industries.
Cantor offers spread bets on the weather
Cantor Index, a London-based spread betting company, has developed a new weather product in conjunction with WeatherXchange that allows clients to place spread bets on hours of sunshine or inches of rainfall.
The product, aimed at individuals and small- and medium-sized companies, allows the user to bet on or hedge against rainfall or sunshine recorded at London Heathrow. Cantor, acting as the market maker, will offer a buy and a sell price that initially straddles the forecast weather. The client will lose or make money based on the difference between the opening and closing prices, multiplied by the number of pounds they stake per point.
Asbestos comes between insurers and reinsurers
Huge reserve increases for asbestos claims are “a prelude to inevitable conflict” between the reinsurance industry and their insurance company clients, according to a new study by Standard & Poor’s analysts John Iten and Bob Partridge.
“Successive rounds of massive reserve increases at primary [insurance] companies not only fail in aggregate to capture the size of the industry’s shortfall, but anticipate an unrealistic level of reinsurance backing,” they say.
Exchange offers PRN forwards, eyes ROCs
The Environment Exchange, a UK-based online marketplace for compliance schemes, has launched a service that allows UK companies to trade forward contracts in Packaging waste Recovery Notes (PRNs). In a few months, it intends to launch a market for Renewable Obligation Certificates.
The Edinburgh-based exchange has been providing an electronic spot market for PRNs since its launch in November 1998. These notes are issued as proof that a certain weight of packaging material has been recycled or recovered – one PRN represents one tonne of recycled or recovered material. There are separate notes for aluminium, glass, paper, plastic, steel, general (mainly wood) and recovered material.
US settles three NSR lawsuits
While the Bush administration continues to push for reform of the New Source Review provisions of the Clean Air Act, which regulates industrial emissions of air pollutants, the Department of Justice (DoJ) and the Environmental Protection Agency (EPA) have reached settlements with three major violators of the regulations.
On 23 April, the government agencies announced the largest Clean Air Act settlement ever: Virginia-based power company Dominion agreed to spend $1.2 billion over the next decade to reduce emissions from six coal-fired plants in Virginia and two in West Virginia.
On the same day, the DoJ and the EPA settled a similar lawsuit with grain giant Archer Daniels Midland). The settlement covers 52 grain processing facilities in 16 states and will cost the Illinois-based company an estimated $340 million over the next 10 years.
FTSE toughens stance on human rights
Index provider FTSE Group has released tighter human rights criteria for its FTSE4Good series of socially responsible equity indexes, as its next step in ‘raising the bar’ for inclusion. To comply with the new guidelines, companies will have to show that they have human rights policies in place, management systems to implement them, and report on their performance.
FTSE is phasing in the new criteria, starting with the resources sector – including oil, gas and mining companies – and the 25 affected companies in the indexes will have until September to comply.The sector was singled out because of its high impact on local communities, its direct dealings with governments and the significant tax revenues it contributes to the countries in which it operates, says FTSE.
French investors turn to SRI
Last year saw dramatic growth in socially responsible investment (SRI) in France, according to a survey by Novethic and Amadeis.The number of SRI funds distributed to French investors doubled from around 40 to more than 80, and assets under management increased by 34% – despite falls in existing portfolios.
“The rise is partly due to the growth in supply. All the main investment management firms offer SRI funds, and new players are entering the market,” says Jean-Pierre Sicard, chairman of Novethic, which describes itself as an SRI resource centre and is owned by investment bank CDC IXIS.
US brokerages expand global links
Two major US energy and environmental brokerages – Evolution Markets and Natsource – have forged new bonds, in Central Europe and South America respectively, to expand the supply of greenhouse gas (GHG) reduction credits and service emerging environmental markets.
Evolution Markets has announced a joint venture in Slovakia with Menert, an environmental engineering and project development firm, to form Evolution Menert.The new company – based in Slovakia and run by Miroslav Wollner, director general of Menert – will provide brokerage, strategic consulting and structured transaction services across a range of environmental markets, including GHG reductions, renewable energy certificates and sulphur dioxide allowances in Slovakia.
Natsource, meanwhile, has allied with the Andean Center for Economics in the Environment to help monetise reductions from Clean Development Mechanism projects in South America. Under the terms of the Kyoto Protocol on climate change, investors in such projects in developing countries can earn ‘carbon credits’ to the extent the projects reduce or avoid GHGs.The Andean Center will evaluate projects, and assist with their development, while Natsource will provide transaction advice and broker credit sales.
Investors warned on Monsanto risks
Monsanto faces “substantial market risk” and suffers from “less sophisticated management than its peers”, according to a report from Innovest Strategic Value Advisors, commissioned by Greenpeace. It suggests the agrochemical giant is vulnerable to possible consumer rejection of genetically- modified (GM) foods and costs from possible contamination of non-GM foods.
“With a $1.7 billion loss in 2002 and a stock market decline of over 50% since 2001, further investor losses seem likely if Monsanto does not mitigate its substantial market risk and diversify its strategy,” says Frank Dixon, a managing director at the New York-based socially responsible investment research firm.
Japanese firms launch new summer weather contracts
Japanese banks and insurers have unveiled new weather risk management products for the upcoming summer season.Tokio Marine and Fire Insurance has designed a hedge for its clients that suffer losses from too few typhoons. Hiroshima Bank is offering a product based on both precipitation and humidity.
Tokio Marine plans to offer a new ‘typhoon derivative’ from the end of April to protect clients’ revenues against a lack of storms hitting Japan. It is aimed at companies such as construction firms and loss adjusters that lose business if a below-average number of storms hits the region, says Shotaro Akita,assistant manager of the financial solutions group.
Hiroshima Bank is offering its first weather hedge based on both precipitation and humidity. Keitaro Masui, a bank spokesman, says insect spray manufacturers could use it to hedge against a decline in sales caused by a lack of mosquitos, which thrive in wet and humid weather.
Swedish power companies test green certificate market
The passage of the bill establishing Sweden’s green certificate scheme has generated a flurry of trading activity, brokers say. But they add that trades have been relatively small and short-term, as affected companies come to terms with the new system.
The green certificate scheme, passed by Parliament on 3 April and which comes into force on 1 May, will require electricity consumers to deliver green certificates equivalent to 7.4% of their electricity consumption this year.This will rise to 16.9% by 2010. Operators of wind, solar and some hydro and biomass plants will generate certificates, each of which represent 1MWh of green power, which they can sell separately from the physical electricity.