”The EU can change this by agreeing a strong 2030 climate framework, which restores investor confidence and kick-starts investment.”She added: “In September, world leaders are due to attend a climate summit convened by UN general secretary Ban Ki-moon. By then, it will be clear which countries are forging an ambitious climate agenda and which countries are holding back progress.“European leaders have an opportunity to attend the summit from a position of real leadership by putting decisive policy in place that sets the benchmark for international action.”In related news, Sean Kidney, chief executive and co-founder of the Climate Bonds Initiative, who attended the UN Climate Conference, called it a damp squib.Kidney said the Australian and Canadian government representatives were trying to torpedo things left, right and centre, while Japan bowed its head and said ’without nuclear’. However, as its renewables are not scaling up as quickly as the country hoped, it has to rely on gas – meaning its emissions targets are “wrecked”, he said.He agreed with US economist Jeffrey Sachs, who said 20 years had been wasted on on negotiations, and that emissions are rising faster than ever.He said a global carbon scheme remained a ”great theory in search of practical application – it may still be the long game, but it is not the short game we now need”.More can be read here.Elsewhere, UK asset manager Threadneedle has launched its UK Social Bond Fund in partnership with Big Issue Invest, the social investment arm of The Big Issue.The fund aims to achieve both an investment return and a positive social outcome by investing in fixed income securities of organisations that support socially beneficial activities and economic development.It will invest in companies, associations, charities and trusts in ’social intensity’ areas, including affordable housing and property, community services, employment and training, financial inclusion, health and social care, transport and communications and utilities and the environment.Targeting an annual gross return in line with that of a UK corporate bond index, it will launch with £10m (€12m) of seed investment from Big Society Capital and £5m from Threadneedle.It will be available to institutional and retail investors from January 2014.In other news, the latest CDP forest annual report revealed that the business community remains largely unaware of the deforestation risks in its own supply chains, threatening shareholder value.Companies told CDP’s forest programme that they faced three key challenges, namely a lack of traceability in global commodity supply chains, challenges with certification and regulatory uncertainty.While businesses such as Marks and Spencer, Unilever, Nestlé and British Airways that have engaged with the programme for five years continue to improve their scores, few companies recognise supply and price volatility as a risk, customers assert no risk to their business from climate change, and only one company recognises fraud as a problem. However, across all companies, there is an average improvement of 27% this year, suggesting progress in managing deforestation risks.‘The commodity crunch: value at risk from deforestation’ report asked companies to disclose their exposure to deforestation risks through their use of five agricultural commodities responsible for most deforestation – palm oil, soy, biofuels, timber and cattle products.According to the CDP, deforestation accounts for approximately 15% of the world’s greenhouse gas emissions, the equivalent of the entire transport sector.And lastly, the Turkish Stock Exchange, the Borsa Istanbul, has chosen global responsible investment research provider EIRIS as its partner to develop the BIST Sustainability Index, which will be launched in early 2014.Borsa Istanbul-listed companies will be assessed against a set of environmental, social and governance indicators, and those companies that perform better than the required criteria will be included in the new index. Investors worth €7.5trn have responded to the conclusion of the UN climate change talks in Warsaw by urging the EU to lead by example ahead of a global deal in 2015 and implement strong climate policies that drive low-carbon investment.Stephanie Pfeifer, chief executive of the Institutional Investors Group on Climate Change (IIGCC), which represents more than 85 of Europe’s largest investors, said: “The agreement on a timetable leading to Paris in 2015 is an important step, but the actions needed to back this up must start now.“Mobilising climate finance will be central to a global deal in two years’ time, and the only way this can be achieved is if public bodies and private investors work together.“This means putting policy frameworks in place, which are truly long term, enshrined in legislation and provide meaningful support for investors who want to back low-carbon energy. Lord Stern said this week that, wherever you look, government-induced policy risk is the biggest deterrent to low-carbon investment.
The London-based International Accounting Standards Board (IASB) has released a narrowly focused amendment to its pensions accounting standard, International Accounting Standard 19 (IAS 19), Employee Benefits.The change, the board said in a press statement, will clarify how defined benefit (DB) plan sponsors must attribute service-related pension contributions from either employees or third parties.The new requirements will take effect from 1 July 2014, with early application permitted.But pensions accounting experts contacted by IPE have drawn a blank when asked which plans would be hit by the clarification. Simon Robinson, a consultant actuary with Aon Hewitt, said: “Their narrow scope amendment takes most – perhaps all – pension plans out of the scope of this change. I have yet to find a UK plan, for example, that will be caught by this change.”Under the new requirements, where the contributions to a DB scheme depend on the number of years’ past service, sponsors must following paragraph 70 of IAS 19 and use the same attribution method as they used for the gross benefit.However, a practical expedient built into the amendment allows sponsors to account for the contributions as a reduction in service cost in the accounting period in which service is rendered if they are independent of past service.Robinson said he would struggle to value a plan in line with the new requirements.“My primary problem is that it takes a negative DC benefit (employee contributions) and tries to apply DB accounting to it.“The process of valuing one of these plans under this approach would almost certainly be a disproportionate effort compared with any arguable benefit in terms of theoretical correctness.”Separately, a leading practitioner close to the issue agreed it was difficult to see where, if at all, the new requirements would kick in.Where they do apply, the source added, applying them in practice could prove challenging, particularly where recordkeeping is incomplete.Another major firm of actuaries told IPE the amendments were not expected to change practice among UK plan sponsors.Elsewhere on IAS 19, newly published minutes of the November 2013 International Financial Reporting Standards Interpretations Committee (IFRS IC) meeting reveal that the extent of the committee’s continuing struggle to determine which troublesome DB plans to address with its revamped IFRIC D9 project.The D9 project is a bid by the committee to address the accounting mismatch that arises when the IAS 19 discounting model to a population of troublesome contribution-based promises.The mismatch is the result of applying either a high-quality corporate bond or government bond discount rate to member benefits that are calculated by reference to the returns on different pool of assets.The November minutes note: “The Interpretations Committee acknowledged that the scope of this project might be broader than it had envisaged, specifically depending on the definition of the variable components of the plans that fall within the agreed scope.”In other tentative decisions reached during the 12 November meeting, committee members agreed benefit promises with vesting conditions and demographic risks should be within the scope of the project.But benefit promises with salary risk look set to remain outside the project scope.As for where the dividing line will fall between variable and non-variable components, the majority of committee members said they would be unhappy with any more to limit the definition of a variable component to returns based on the actual return on any plan assets.Behind that concern was the fear that any such move would leave many economically similar plans outside the scope of any interpretation and accounted for under IAS 19’s projected unit credit approach.In an interview with IPE, interpretations committee member Andrew Watchman said: “The challenge facing IFRIC is to define the scope of this third category in a way that captures the plans for which the mismatch issue is most evident and problematic, without sweeping in many other plans for which the existing model seems to work well enough.”The November 2013 IFRIC Update warns: “The Interpretations Committee acknowledged that the scope of this project might be broader than it had envisaged, specifically depending on the definition of the variable components of the plans that fall within the agreed scope.”The report continues that the committee will “discuss at a future meeting how to proceed with this project”.
The body, which is partly funded by a public TV-license fee, will now contribute £740m over the next four years, compared with the previous schedule of £375m.The schedule agreed at the 2010 triennial review would have seen the BBC contribute £675m between 2014 and 2021, but this will now rise to £1.2bn.By 2026, the end of the new schedule, the organisation will have contributed £1.96bn, aiming to remove the deficit completely.Despite the higher than expected return on the scheme’s assets, the trustees said market conditions were to blame.The fall in UK government bond yields since 2010 resulted in a £1.6bn addition to the deficit.Bill Matthews, chair of the trustees, said the scheme also agreed to add two years to its funding plan to reach self-sufficiency.He also said the trustees shifted the firm’s investment portfolio to provide greater certainty on returns and complement the scheme’s growing pensioner population.Since 2010, the scheme has reduced its equity holding by 18 percentage points, as it now accounts for 38% of holdings. This was in reaction to the increase in the number of pensioners by 3,800.Bonds now account for 31% of investments, compared with 22% in 2010, while the scheme has actively increased its allocation to alternatives, rising to 17% from 9%.The scheme was also only 53.1% funded on a buyout basis, with an additional £9.1bn required from the BBC to cover this.However, the trustees stressed the scheme had no plans to enter this arrangement.“Throughout the process, the trustees were conscious of the need to strike a balance that was both appropriate for members and did not undermine the BBC’s ability to support the scheme,” Matthews said.“I must stress that the scheme will continue to pay out benefits in line with its rules.” The BBC has been forced to double its contributions to its pension scheme after the triennial review revealed a sharp rise in the deficit.The BBC Pension Scheme, which has around 59,000 members including 22,000 pensioners, saw its deficit increase by £900m (€1.1bn) from 2010, hitting £2bn.The results of its 2013 triennial valuation now estimate its liabilities at £12.3bn, up by £3bn, compared with assets of £10.3bn, which also rose by £2.1bn.As a result, the schedule of contributions from the UK broadcaster to its pension scheme has now been ramped up.
The three savings banks that jointly own Corpus Sireo – Sparkasse Köln-Bonn (50%), Sparkasse Düsseldorf (25%) and Frankfurter Sparkasse (25%) – are looking for a buyer.Norbert Minwegen, spokesman for Sparkasse Köln-Bonn, said: “Corpus Sireo has developed from a classic regional business into an international one.”He explained the business of savings banks was traditionally focused regionally, and that the three owners therefore decided to look for a buyer.Corpus started off as a regional player in 1995, but the portfolio quickly expanded, first with the exclusive mandate gained in 2001 to manage the properties of Deutsche Telekom. In 2007, the company merged with Sireo real estate, and today it also has properties in the US.Currently, Corpus Sireo is managing more than €16bn in real estate assets, almost €2bn of which is for institutional clients.Minwegen cited the current market environment as another reason to sell Corpus Sireo now.“There is currently a good market for real estate, and so we reckoned it might also be a good time to sell off shares in a real estate company,” he said.Three weeks ago, the Sparkassen commissioned Lazard to look into a possible sale, and, so far, the responses have been “very good” – from both national and international parties.However, Minwegen stressed that none of the current owners was “under any rush to sell”, and that the process of a possible sale had “only just begun”.“We are testing the waters,” he said.Just last week, Corpus Sireo closed its Health Care II fund, taking on board six undisclosed German institutional investors.They provided €150m in equity for the fund, which is to grow to €300m using a debt ratio of 50%.In a statement, Corpus Sireo said: “So far, the fund has acquired eight care homes, and contracts are due to be signed for a further two homes in the next few weeks.”The fund is focusing on new-build care homes in Western Germany, and “at least five” different operators have been earmarked for the approximately 30 care homes to be acquired.The Corpus Sireo Health Care Fund I, which is now fully funded, with a volume of about €430m in 46 care homes, is to date the largest German investor in this asset class.
The actuarial society also warned that the compensatory measures suggested to soften the blow of the cut to the conversion rate would lead to “massive increases” in benefits for some people and thereby generate “considerably higher costs”.According to the reform plans, the rate by which salaries are discounted to calculate contributions into the second pillar is to be slashed.This rate – the Koordinationsabzug – is used to coordinate expected payments from the first pillar and those from the second pillar to make up 60% of the final salary before retirement.The Swiss pensions industry has been debating for several years now whether a higher compensation rate might be fairer for lower incomes.However, according to calculations by the SAV, slashing the Koordinationsabzug could increase costs in the second pillar by up to 50%.Asip, on the other hand, has welcomed the reform proposal as a much-needed improvement for people on lower incomes.To simplify calculations, the pension fund association suggested doing away with the Koordinationsabzug altogether and instead capping payouts from the second pillar at a certain maximum.One reform proposal Asip has challenged is changing the mode in which the second-pillar minimum interest rate is calculated.Currently, the minimum rate is set at the end of a given year for the next year based on bond returns.The government wants to change this to an ex-post calculation based on actual returns in pension fund portfolios for the year in which the minimum rate had to be achieved.However, Asip said this change did “not bring any added value” for pension funds and their members, and argued that Pensionskassen needed to know “the rules of the game” in advance. The debate over Switzerland’s reform plans, Altersvorsorge 2020, look set to continue after Asip, the Swiss pension fund association, approved the government’s plans to lower the conversion rate just days into the consultation phase.Asip agreed that the conversion rate – used to calculate pension payouts from accrued assets – should be cut from 6.8% to 6% in the second pillar, yet Swiss actuaries still consider this level to be too high.In a statement, the Swiss actuarial society SAV said “a rate of 5.6% at the most is justifiable”.The SAV cites the country’s largest pension fund Publica, which is to lower its conversion rate to 5.65% from 2015, similar to other pension funds managing above-mandatory contributions.
The Shell pensions bureau (SPN) has entered into a unique partnership with SPO, the college for pensions education in the Netherlands, to improve the competence of the board members at Shell’s two pension funds, SSPF and SNPS. Both schemes said they wanted to “set an example” on pensions and governance expertise.Since 2012, SPN’s Academy has provided a mix of educational instruments and know-how to board members and candidates of the pension funds, their accountability organs (VO), supervisory boards (RvT) and SPN staff.The Academy will serve as the focal point for all schooling, training and reference material, and support the entire process, while SPO will offer services to increase competence, carry out expertise projects and set up the annual curriculum. Mark de Wijs, SPO’s director, said: “We will think along with the pension funds about boosting competence during the whole cycle. With the aid of new educational instruments, monitoring and maintenance, and based on individual assessments, we will be in control.”In his opinion, the cooperation between SPO and the Shell schemes is unique in the Netherlands. The SPN Academy already provides external schooling, in addition to courses by its own specialists and skills training by the sponsoring company.These will continue under the new set-up, SPN said. In the opinion of the Shell schemes, the mix of internal and external competence-boosting will add value to overall pensions education.In July 2013, Shell Netherlands set up a second pension fund – offering an individual defined contribution plan for new employees – while closing its existing final salary scheme for new entrants.SPN is responsible for the daily management of the pension funds, and supports and advises their boards on governance, actuarial issues, asset and risk management and pensions strategy. SPO was founded in 1989 by the pensions sector and focuses on maintaining standards for people in governing positions at pension funds.
Veritas, the €2.7bn Finnish pensions insurer, made a 5.8% total return on investments in 2015, down from 6.4% the year before, according to preliminary results.At the end of October, the Finnish pension fund said it made a 2.4% total return on investments in the first nine months of the year, so returns appear to have accelerated in the last quarter of 2015. The pensions firm said market volatility intensified at the end of last year in liquid risk assets such as equities and corporate bonds.Niina Bergring, investment director, said: “Diversification became increasingly important, and its importance will increase further.” Bergring said real estate investments, which had traditionally performed well for the pension provider, produced good returns over the course of last year.“The Finnish real estate market really woke up in the last year, and there were a lot of transactions,” she said.The global economic cycle is approaching a mature phase and the market outlook characterised by uncertainty, she said.Bergring said the Chinese economy was continuing to cause concern, and that Veritas had taken a cautious position regarding this country.This stance has been advantageous, she said.“In 2016, we are striving for a steady return with a moderate risk profile,” she said.According to the preliminary annual figures, Veritas’s solvency capital stood at around 28%, with the solvency ratio at 2.2%For 2014, Veritas reported its solvency capital at 29.1% of technical provisions, and the ratio as 2.2%.
BlackRock, the world’s largest asset manager, has joined other institutional investors in suing Volkswagen in connection with the emissions scandal in which the car manufacturer is embroiled.A spokesman for BlackRock said: “On behalf of their investors, a number of BlackRock-managed collective investment schemes are pursuing, alongside other institutional investors, legal action against Volkswagen AG in connection with Volkswagen’s failure to disclose to investors its use of ‘defeat devices’ that manipulated emission tests.”He added that, “in light of the ongoing legal proceedings”, the asset manager could not comment further at this point.The complaint is understood to have been filed on Friday, 16 September, and is supported by litigation funders Bentham Europe. More than 80 investors are participating in the class action that Bentham Europe is financing, which is seeking damages of up to €2bn.The Greater Manchester Pension Fund (GMPF), the UK’s largest local authority pension fund, is involved, announcing its participation on the same day that the governments of the German federal states of Hesse and Baden-Württemberg also said they would be filing lawsuits against the company at Braunschweig District Court.The flurry of announcements came ahead of a statute of limitations associated with the 2015 scandal. Bentham Europe said its filing comes a year after Volkswagen publicly disclosed that it was using defeat devices in its cars.The states of Hesse and Baden-Württemberg join Bavaria in pursuing legal action.The federal state of Bavaria announced its plan to file a lawsuit in early August, doing so on behalf of its civil service pension fund.Volkswagen was last year discovered to have used so-called defeat devices to cheat emissions tests, sending its share price tumbling.
The scheme is poised to enter the PPF, with benefit cuts of 10% for members who have not yet retired.RAA deals have also been struck in full or in principle with Halcrow and Tata Steel UK, but in these cases the arrangement involved the creation of a new scheme that will operate outside the PPF.In TPR’s mind the proposed new mechanism would be separate from and additional to its power to wind up a scheme when it becomes clear the scheme may never be able to meet its funding obligations.On its wind-up power, TPR called for these to be revisited “to allow us to take into account all our objectives which are relevant to DB when considering to exercise it”.In its response to the government’s DB green paper, the regulator also called for more powers in relation to scheme funding and information gathering, and for the requirement for a trustee board chair’s statement to be extended to DB and hybrid schemes.“Being able to set clearer standards and to shift our dynamic with all of our regulated community so that we can monitor against those standards on an ongoing basis, not just when a breach is detected, is essential to our being a more proactive regulator,” it saidIn relation to scheme funding, TPR advocated it being given the power to set binding standards in detailed codes or guidance, supported by a legally enforceable “comply or explain” regime.The regulator also said there was a case for more powers to encourage employers to make higher deficit repair contributions where they can afford to do so.TPR called for more comprehensive interview and inspection powers for information-gathering purposes, and the ability to impose civil penalties in addition to criminal penalties for non-compliance with information requests.On consolidation, TPR said it supported a voluntary approach. Extending the requirement for a trustee board chair’s statement combined with a legal requirement for trustees to update on what they are doing to control costs could provide a significant impetus, it added. The UK pensions regulator has floated the idea of allowing stressed pension schemes to be separated from the employer on the basis of scheme viability rather than the risk of employer insolvency.Responding to the government’s review of defined benefit (DB) scheme regulation, the Pensions Regulator (TPR) said it might “be worth exploring” whether there was room for a mechanism allowing for such a separation.Currently, UK law allows for a sponsoring employer to cut its financial obligations to a scheme if this would avoid the company becoming insolvent. The statutory mechanism for this is a regulated apportionment arrangement (RAA), which must be approved by TPR and the Pension Protection Fund (PPF) and satisfy certain conditions.RAAs are rare, but have grabbed headlines in the past few months. The UK arm of household appliances company Hoover agreed an RAA , which was at risk of insolvency as a result of the funding needs of the pension scheme.
Asset manager Candriam is extending its thermal coal and tobacco exclusions policy to all its assets under management, it announced today.The exclusions had already been in place for socially responsible-invested (SRI) assets, but would now be applied to the full scope of its assets under management. This would take in all funds and segregated mandates, a spokesman noted.As of the end of June, Candriam has €113bn of assets under management across active, smart-beta, indexed and alternative strategies.The asset manager, which is a subsidiary of New York Life Company, indicated it would also be fully divesting from companies that produce chemical, biological and white phosphorous weapons. Divestments triggered by the new measure would be implemented by the end of this year, according to the manager.Companies with an “exposure level” of more than 10% to thermal coal will be affected by the exclusion, which the spokesman noted was a stricter criterion than that set by many other investors. The asset manager would ban all companies launching new coal projects.The exclusion of tobacco targeted both manufacturers and their suppliers, it said.Naïm Abou-Jaoudé, CEO of Candriam and chairman of New York Life Investment Management, said: “Coal is the most polluting energy source and the first stranded asset in an energy transition pathway, while the harmful effects of tobacco are increasingly exposed.“We recognise the important role asset managers play in tackling major global issues such as health and climate.”Vincent Hamelink, Candriam’s chief investment officer, added “health, social and environmental costs are key in a risk-return analysis”.“Extending our divestment strategy to our mainstream funds is a logical next step as investments in these companies are increasingly incompatible with our long-term risk/return objectives and our sustainability targets”.Candriam’s announcement coincides with a climate summit and the annual responsible investment conference of the Principles for Responsible Investment (PRI) in San Francisco this week.Fossil fuel divestment on the riseAccording to a report from philanthropy and impact investing firm Arabella Advisors, nearly 1,000 institutional investors with $6trn (€5trn) in assets have committed to divesting from fossil fuels, up from $52bn four years ago.Released ahead of the climate summit, the report said the recent growth was primarily driven by insurers, pension funds and sovereign wealth funds.The growing success of the divestment movement had accelerated in recent years because of “the intersection of ethical, financial and fiduciary imperatives to divest and invest,” it said.The report can be found here.