According to a February 25, 2021 article in Bloomberg, Mark Carney, ”a leading figure behind this year’s global climate talks, walked back remarks claiming the half-trillion-dollar asset manager where he works [Brookfield] had neutralized pollution across its portfolio”.
The article explains that the controversy hinges on whether a company can claim a “net zero” status, i.e, that an investment in renewable energy avoided an investment in the same amount of fossil fuels. Climate experts called foul and Carney swiftly backtracked.
Brookfield and the Fund
Who’s Mark Carney and why should Fund members care? Carney is UN Secretary-General António Guterres' Special Envoy on Climate Action and Finance. https://www.un.org/sg/en/content/sg/personnel-appointments/2019-12-01/secretary-general-appoints-mark-joseph-carney-of-canada-special-envoy-climate-action-and-finance. He’s also, according to the Bloomberg article, adviser to UK Prime Minister Boris Johnson.
Brookfield has a history with the UN Pension Fund. When former Director of Investments Herman Bril co-edited a book on “Sustainable Investing” earlier this year, Carney wrote the foreword.https://www.amazon.com/Sustainable-Investing-Herman-Bril/dp/0367367351
Reportedly, Bril recused himself from a private market committee (PMC) meeting concerning Brookfield on August 26, 2020, claiming that he had only just found out that his friend, Mark Carney, intended to join Brookfield.
Pedro Guazo, appointed as Representative of the Secretary-General for Investments, and head of the Office of Investment Management (OIM) since the departure of Sudhir Rajkumar at the end of March 2020, reportedly requested an internal independent conflict of interest review of the incident by the Fund’s Risk and Compliance Unit.
Arabesque and the Fund.
In another questionable recusal process, an internal investment governance audit (A/75/215 published in July 2020 https://documents-dds-ny.un.org/doc/UNDOC/GEN/N20/190/99/PDF/N2019099.pdf?OpenElement) raised questions about the recusal process in 2019 concerning a company, reportedly Arabesque Asset Management, and a senior manager, reportedly, Bril:
"91(c). A project team overseen by another senior manager recommended an investment in an external investment management company in 2019. The senior manager had previously engaged in outside activity with two individuals who were members of the Board of Directors of the same investment management company, with one of them being the Board's Chair. Although the senior manager obtained the required permission for the outside activity, he did not recuse himself from the project preparation and review process for the proposed investment, including when the proposal was submitted, in May 2019, for consideration by the Internal Investment Committee, of which he was a member. The senior manager did not attend the meeting of the Committee in December 2019, which he described as a de facto recusal. However, the minutes of the meeting did not indicate that his absence was due to recusal."
Bril’s new job at Arabesque
One of the editors of Bril’s book, Georg Kell, is Chairman of Arabesque, an ESG Quant fund manager. He’s a founding Director of the UN Global Compact.
Where’s Bril now? Bril landed at Arabesque after he left the Fund at the end of March 2021, .
https://citywireselector.com/news/arabesque-hires-un-pension-fund-investment-chief-for-ceo-role/a1475911
A “major stumble” by Carney
Carney is apparently a global financial superstar. A 13 March 2021 article in The Guardian gushes that he's “the banker’s banker, the superstar banker, the George Clooney of banking, possibly even the James Bond of banking.”
https://www.theguardian.com/business/2021/mar/13/mark-carney-bank-of-england-job
At the time of his appointment by Guterres as his Climate Envoy on 1 December 2019, Carney was governor of the Bank of England. He resigned from that position in 2020, according to The Guardian. Before that, he was governor of the Bank of Canada. Carney, who began his career at Goldman Sachs, has been vice-chair at Brookfield since October 2020, “the second largest investor in climate friendly businesses” according to The Guardian. Since February 2021, he’s also on the board of fintech company, Stripe, reportedly valued at $95 billion in March 2021, where he is, according to the Guardian “tasked with helping businesses fund emerging carbon-removal technologies.”
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According to the Financial Times (April 9, 2021) a “major stumble by UN climate adviser Mark Carney over the carbon accounting methods used by Brookfield Asset Management Inc., where he is vice-chair, has thrown the spotlight on controversial climate claims and the contested definition of ‘net zero.’”
Climate experts claim “greenwashing”and Carney “rowed back”
The Financial Times adds: “Climate experts led by the respected Science Based Targets initiative promptly deemed it “greenwashing,” and Carney swiftly rowed back his remarks, saying he was “'a strong advocate for net zero science-based targets', which so-called avoided emissions 'do not count towards'”. Further, “In March, Brookfield also revised its public position, telling the FT that “our global business is not net zero today, and it was not our intention to suggest that we have achieved our objectives in carbon reduction.”
Acording to Bloomberg: “Brookfield’s sprawling businesses across real estate, renewable power, infrastructure and private equity are fraught with climate challenges, which Carney will need to navigate in his board role.”
Some of the questions raised by these events center around not just Carney's role as Guterres' Climate Envoy, but also the Fund's compliance with ESG in any investments it might have in Brookfield, and in general, how the Fund's investment governance culture has changed to address conflicts of interest,
First, how will Carney navigate these challenges as the SG’s Climate Envoy?
More important than how Carney is going to navigate those challenges in his role at Brookfield, is how he’s going to navigate them in his role as the UN Secretary-General’s Special Envoy on Climate Action and Finance, given that according to Bloomberg, Brookfield includes in its “$600 billion portfolio [are] investments in coal and other fossil fuels”.
The implications for addressing climate change, and by extension, issues of environmental, social and governance (ESG) are crucial to the survival of the planet, particularly when, as the Financial Times notes with regard to Carney's retracted claim, “The backlash illustrates the complexity of climate accounting, which lacks standardization and is open to manipulation, and the ease with which even experienced climate ambassadors can fall foul of the still-emerging rules. Climate finance experts say it also highlights the fragility of global efforts to strive for net zero, a goal that is not clearly defined and relies heavily on the goodwill of those making claims.”
How are Guterres and Guazo doing on implementing the investment governance audit’s recommendations?
According to a summary of the investment governance audit, page 2: “OIOS made two critical and eight important recommendations. The Executive Office of the Secretary-General accepted all the recommendations and has initiated action to implement them in coordination with the Office of Investment Management."
Guazo says he “let’s the air come in.”
On January 19, 2021, Guazo told International Investor that “His first order of business” was transparency, that he described as “opening the doors and the windows to let the air come in.” https://www.institutionalinvestor.com/article/b1q629s81jd1g2/The-Inside-Story-of-How-the-United-Nations-Investment-Office-Made-a-Plan-to-Rebuild
Guazo has high praise for Bril: “He credited the outgoing CIO, Herman Bril, with the fund’s strong performance, noting that he both diversified assets under management, and increased them by roughly 15 percent during his five-year tenure. Bril is leaving the fund in March to move with his family to Europe.”
He also said that “Since [he, Guazo] joined, the fund has also divested from thermal coal and has received approval from the UN’s General Assembly to trade using derivatives on a two-year trial basis.”
What’s the current situation with Fund investments with Brookfield and do they comply with the Fund's ESG policies?
In light of Guazo's statement to International Investor on divesting from thermal coal, what’s the current situation with Fund investments in Brookfield, and the implications for the Fund’s ESG policy (environmental, social and governance), given Brookfield's reportedly heavy investments in coal and other fossil fuels?
How’s the Fund handling potential conflicts of interest:
Without in any way imputing responsibility for the Fund’s investment governance culture, currently or in the past, to external companies, such as Brookfield or Arabesque, or their principals, the events concerning these companies must be viewed in the context of the governance audit that reported “…conditions [that] pointed to the lack of an appropriate tone at the top with regard to the highest ethical standards of behavior that are expected of officials entrusted with fiduciary responsibilities” (paragraph 93, UN document A/75/215).
The investment governance audit noted (paragraph 91 a) that related to at least one OIM recusal procedure “the senior manager designated his subordinate to act on his behalf. OIOS is of the view that the action taken to mitigate the conflict situation in this case was inadequate because the designated individual still reported to the senior manager and remained subject to his authority.”
Further, paragraph 92 of the audit notes that “Non-disclosure of potential or actual conflicts of interest and/or inadequate recusal from investment processes not only may undermine the Fund’s ability to make sound investment decisions but could also potentially damage the Organization’s reputation.”
What was the result of the independent review?
What were the results of the independent review that Guazo requested in respect to Bril’s recusal from the meeting last August concerning Brookfield?
What’s the situation with investing in derivatives?
Again, with respect to Guazo's statement to International Investor, that the Secretary-General "has received approval from the UN’s General Assembly to trade using derivatives on a two-year trial basis", given that derivatives were at the heart of the market crash in 2008, what is the situation with investing in derivatives? Were the Fund to invest in derivatives would it contravene its rules and regulations? What are the current risks of such investments? There’s no indication that investing in derivatives is any less risky now than it was in 2008.
On March 30, 2021, CNN Business reported that Archegos Capital Management imploded “send[ing] shock waves across Wall Street.” According to the article, Archegos was bankrolled by some of the biggest banks in the world, including Goldman Sachs, Credit Suisse, Deutsche Bank (DB)and Wells Fargo [and]. Some of those banks are now facing sizable losses of their own from their ties to Archegos, which reportedly used derivatives to mask the size of its large investment positions.”
https://www.cnn.com/2021/03/30/investing/wall-street-hedge-fund-elizabeth-warren/index.html
A rush to spend?
The market value of the Fund’s assets has skyrocketed to $80 billion in the past year and there are reports of a rush to spend, spend, spend, on benefits for high-level staff. Specifically, there are indications that Assistant-and Under-Secretaries General (ASG's and USG's) who came up through the ranks are pushing to lift the rule that caps their pension benefit at D-2 (Director level).
But just a year ago, in March 2020, the value of market assets plummeted by $10 billion in a single month. “By the end of that month, just as the coronavirus pandemic was rocking markets, the pension fund’s assets dropped to $63 billion — a loss of $10 billion in a single month, according to a July report to the pension staff board. Those losses were recouped by the year’s end.”https://www.institutionalinvestor.com/article/b1q3024t6rl4lb/Toxic-Workplace-Accusations-Trail-UN-Pension-as-It-Searches-for-New-CIO
Perhaps it's time to remind the Secretary-General, as the Fund's primary fiduciary, of the primacy of "safety" in the list of key criteria by which the General Assembly notes that he should be guided as fiduciary for investing the Fund's assets (paragraph 4 of the investment governance audit): "...the General Assembly has repeatedly reaffirmed that ...the decisions of the Secretary-General concerning the investments of the Fund should be guided by the key criteria of safety, profitability, liquidity and convertibility.".
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