Norway’s sovereign wealth fund, the world’s largest with US$1.3-trillion in assets, has put Bombardier Inc. BBD-B-T on a watch list as it weighs whether to pull its investment in the Canadian multinational over ethical concerns.
Bombardier will be put under observation for two years because of an “unacceptable risk that the company contributes to, or is responsible for, gross corruption,” said Norges Bank, the country’s central bank. India’s Adani Ports and South Korea’s Hyundai Glovis were put on similar watch by the fund.
The bank manages the wealth fund but follows an ethical mandate set by the Norwegian parliament, based on advice from a special ethics council named by the Finance Ministry. That mandate means it won’t invest in certain companies in industries such as weapons manufacturing and tobacco production.
“The council’s investigations have revealed that Bombardier or its subsidiaries can be linked to allegations or suspicions of corruption in six countries over a period spanning more than 10 years,” it said in documentation provided by Norges Bank. All the cases relate to bribes or suspicious transactions amounting to more than US$100-million, done through agents, intermediaries or partners, with the object of winning contracts for Bombardier’s subsidiaries, the council said in its recommendation.
The council expressed doubts about how well Bombardier is setting a “tone from the top” on ethics matters. And it said there are shortcomings in the way the company has dealt with past allegations of misconduct. It said it will seek more information about Bombardier’s anti-corruption efforts over the observation period and monitor any new revelations linking the company to cases of alleged corruption or other financial crimes.
Bombardier spokeswoman Anna Cristofaro said the company has found no evidence of wrongdoing in its business dealings. “We take these matters very seriously and we’re co-operating with the relevant regulatory authorities,” she said. “Conducting business with integrity and the highest ethical standards is a top priority for Bombardier and its more than 13,000 employees.”
The development is new flashpoint for Bombardier chief executive officer Éric Martel, who is trying to steer the industrial company back toward profitability after years of crisis. Bombardier has been dogged for years by claims it was involved in corruption, but this is believed to be the first time an institutional investor has publicly called out its internal culture and suggested it might not have rigorous enough ethics and compliance systems in place.
Norway’s sovereign fund has a 1.2-per-cent stake in Bombardier worth about $33-million at current trading prices, according to Refinitiv data. It will stay invested in the company during the observation period at the council’s recommendation because most of the allegations and suspicions of corruption are linked to Bombardier’s former train unit, which it sold to France’s Alstom SA last year. Bombardier’s current private jet business carries less corruption risk, the council said.
Scrutiny into Bombardier’s past business dealings continue on several fronts.
The World Bank has alleged in a preliminary audit that Bombardier used corruption and collusion to win a rail-signalling systems contract in 2013 in the former Soviet state of Azerbaijan, then obstructed an investigation of the deal. The bank accused the company of colluding with senior officials at Azerbaijan railways to win the US$340-million deal and says it also used an intermediary to “funnel bribes” worth millions of dollars to Azerbaijani officials while routing tens of millions more through a network of Russian-controlled shell companies.
The company has disputed the findings and has filed its own response to the audit process. The bank, which financed the bulk of the project, has yet to release its final conclusions. Meanwhile, a Swedish court acquitted a former Bombardier vice-president of aggravated bribery this past December in connection with the contract and said there was no conclusive evidence that the tender was rigged to Bombardier’s benefit.
In another case, Britain’s Serious Fraud Office opened an investigation in 2020 into Bombardier over suspected bribery and corruption related to contracts and orders from Garuda Indonesia, the flag airline of the Southeast Asian country. The U.S. Department of Justice and the Royal Canadian Mounted Police have also launched probes in the same matter and requested documents from Bombardier.
An Indonesian court convicted Garuda’s former CEO and an associate in 2010 of corruption and money laundering in connection with five procurement processes, including the sale and lease of Bombardier CRJ1000 aircraft. No charges have been laid against Bombardier or any of its directors, officers or employees. The company has launched its own internal review into the case led by outside lawyers and says it has found nothing unusual. It has since sold all its commercial aircraft assets.
In its risk assessment of holding Bombardier shares, Norway’s ethics council said its chief concern is the practical implementation of an anti-corruption system. While Bombardier has some elements in place to prevent and detect corruption and performs due diligence on its partners and customers, there is “a discrepancy between what the company has disclosed and the information the council has obtained from other sources,” the council said. It said that’s caused it to question how effectively the company is handling third-party risk and reporting possible irregularities.
In the Azerbaijan case, the council said Bombardier received three internal reports on the project in 2015 and 2016 but did not launch, as far as it is aware, any inquiries into these matters until Swedish police started its investigation in the fall of 2016. Nor has Bombardier disclosed whether the case has had any consequences for the employees who were involved, the council said.
“All in all, the council does not consider that this provides reasonable assurance that Bombardier has implemented adequate measures to prevent, detect and deal with corruption,” it said.
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China still holds the cards for global supply chains, whether or not Covid lockdowns frustrate businesses in the near term. An employee works on the production line of the screens for 5G smartphones at a factory on May 13, 2022 in Ganzhou, Jiangxi Province of China.
Standardizing ESG reporting, and making it mandatory, would be a start toward reliable ESG investing
Author of the article:
“Scam” or “dangerous placebo” are some of the terms used by critics to denounce Environmental, Social and Governance (ESG) investing. Yet others see it as one of our last chances to pivot our financial world to a more sustainable and environmentally-friendly model.
ESG, a form of sustainable investing, is increasingly being used as a measure of how well a company is using its investment money. For investors looking to instigate change, ESG scores help them decide if a company is worth their money.
This is despite ESG dating back to 2006, when the U.N. launched the Principles for Responsible Investment at the New York Stock Exchange. The initiative was backed by leading institutions from 16 countries, representing more than $2 trillion in assets owned at the time.
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ESG critics and optimists have called on the government to use its power to fine tune ESG metrics and finally standardize it, in order to give it more credibility.
ESG not what it seems?
In 2021, ESG investment saw issuance exceeding US$1.6 trillion, bringing its total market to more than US$4 trillion. Not only that, but Bloomberg expects ESG assets to exceed US$53 trillion by 2025.
Fierce critics like Tariq Fancy — who worked as the chief investment officer for investment management firm BlackRock before leaving in late 2019 — made headlines with his disillusionment over ESG’s true impact.
“That $4 trillion isn’t really $4 trillion,” Fancy said, in reference to the widely-circulated figure.
For Fancy, the “vast majority” of what’s happening is that companies are “recategorizing existing funds and moving money and shares around from one basket to another…
“They’ve figured out that socially conscious investors will gladly pay more in fees for something with a ‘green’ label,” he said, adding that ESG funds have 43 per cent higher fees on average.
“Also, they don’t fund carbon capture and new innovations, for the most part they publicly overweight tech companies (Microsoft) and underweight oil companies (Exxon),” he added.
Also, regular investors mainly have access to secondary shares that are sold and purchased on a daily basis, which have little impact, argued Fancy.
“The changes we need immediately to flatten the [greenhouse gas] curve are collective actions led by the government — experts have been telling us this for decades,” he said.
As ESG investing rises, so do emissions
Like elsewhere, Canadian ESG investment is increasing, but, again like elsewhere, the nation hasn’t reduced its emissions in the past year.
A March, 2022 report from the International Energy Agency said that global energy-related carbon dioxide emissions rose by six per cent in 2021 to 36.3 billion tonnes — a new record — as the world bounced back from the pandemic.
ESG does make a difference
Art Lightstone, climate activist and host of the Green Neighbour Podcast, acknowledges ESG has its critics. But for him, this class of investing is still making a difference.
“The fact that ESG investing has not only helped to launch several green tech companies, but also encouraged less socially-minded companies to compete in ESG spaces is now pretty much undeniable,” Lightstone said. “Tesla is invariably the best case in point. The amount of investment directed toward Tesla and other EV startups has been mind boggling.”
While money can be moved from one shareholder to another, “that’s not where the story ends.” He cited the example of Tesla when it was “able to raise large amounts of capital [at market prices] with rather little dilution to its stock.”
“Tesla did this three times in 2020, and with that money they were able to build more factories, scale up their production, lower their per-unit costs, increase their profit margins, and therefore increase the economic viability of their entire operation,” he explained.
This expansion created a domino effect for legacy automakers such as GM and Ford, who are investing more in their electric vehicle programs.
Investing intentionally and collectively
Tim Nash, founder of Good Investing, a company with a goal to help at least one million Canadians invest intentionally, argues that informed decision-making can make the impact needed.
“People spend more time choosing an avocado in the grocery store than they spend when choosing a mutual fund for their RRSP,” Nash said.
Instead, he urged people to think more about their portfolios and ways to diversify, including carving out part of their portfolios for investment just “for doing more good.”
“This is where we can invest part of our money into things like community bonds and impact investments,” he explained.
Community bonds, a debt financing tool, are issued by non-profit, charity or co-operative organizations. They allow these groups to take loans from community backers. The backers will eventually get paid interest for investing in an impactful project, while the organization enjoys access to capital.
During the interview, Nash noted that he was located at the Centre for Social Innovation, a non-profit that owns two buildings in downtown Toronto.
“How does a non-profit own two buildings in downtown Toronto?” he asked. “Community bonds. That’s how they were able to access capital.”
Then there is also shareholder activism, and this is where Nash highlighted how shares that are publicly traded on a secondary market can be used as a powerful tool if used collectively.
“If I sell my shares, someone else is going to buy them. However, if enough people sell their shares that will impact a company’s cost of capital,” he said. “This is a very important metric when it comes to how a company operates.”
One example Nash cited as proof of effective shareholder activism is the increased cost of capital for fossil fuel companies. At the same time, there has been an unprecedented shifting of investment capital into greener energy.
Better knowledge needed
The financial industry needs to delve into the environmental sciences, sustainability, and systems thinking to have a more well-rounded view on how to make a full impact, Nash says.
“I do think that a lot of the criticisms come from the financial industry, people who don’t have a background (in these topics),” he said. “ESG is a very broad concept… We need everybody rowing together in the same direction.”
While the government is in a position to lead, it’s still caught up in a four-year election cycle, he added.
“It’s even shorter if it’s a minority government, which we’re in right now,” he noted.
Time to start mandating metrics on ESG
Nash put the onus on the Ontario Securities Commission, which regulates companies listed on the Toronto Stock Exchange, to start mandating disclosures of ESG issues, as other regulators have done.
For example, the SEC in the U.S. is focused on the climate aspect of ESG. It mandates that all publicly traded corporations publish their environmental compliance costs, and proposed new rules in March to standardize climate-related disclosures to investors. The rules would require businesses to disclose information about their direct greenhouse gas emissions, as well as the indirect emissions from the energy the business consumes.
In Europe, the trend tends to lean more toward the corporate governance aspect of ESG. Under the 2018 Non-Financial Reporting Directive of the European Union, companies are expected to disclose information on environmental, social, and employee-related problems, such as anti-bribery, corruption, and human rights performance.
In Nash’s view, Japan is ahead of the curve with its Financial Services Agency actually mandating climate risk disclosure.
“Investors, I think, to some degree are demanding more data and information and disclosure than what governments are requiring,” he said. “This is an area where investors are asking tough questions and pushing that forward. That said, investors can ask, and companies get to decide how they respond. Many of them are responding in different ways.”
ESG optimists and critics alike want to see those regular investors emboldened to make the difference the world is waiting for.
This article provides information only and should not be construed as advice. It is provided without warranty of any kind.
(Bloomberg) — Real Madrid Football Club is set to receive about 360 million euros ($381 million) from Sixth Street Partners, providing much-needed funds as its stadium undergoes an 800 million-euro renovation.
Sixth Street will get the right to profit from certain operations at Real Madrid’s Santiago Bernabeu stadium for twenty years, the investment firm said in a statement on Thursday. The U.S. investor will get a 30% stake in the stadium operations and will receive revenues from all its activities except for season-sale ticket sales, according to a New York Times report.
Real Madrid, which won its 35th Spanish league title last month, can use the funds however it sees fit, including to sign players. Real is the most successful European team of all time, with 13 champions leagues, and it is set to play the final that may give it a record 14th later this month.
The deal announced Thursday includes the Legends, an American sports and live events management company that’s partly owned by Sixth Street, and which has overseen Real Madrid’s retail business since 2020.
Real Madrid has been raising money to help pay for the ongoing refurbishment of its stadium, including a removable pitch that will allow the club to shift the grass surface into storage to host other revenue-generating events such as concerts or tennis matches.
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