News and commentary from the April/May edition of Corporate Citizenship Briefing issue 105
Organisations certified against new international Voluntary Quality Standard
Leading corporate sustainability research organisations from across Europe have been certified against a new international Voluntary Quality Standard (VQS) for Corporate Sustainability and Responsible Investment research. Launched by the Association of Independent Corporate Sustainability and Responsibility Research (AI CSRR) the VQS has been developed to drive high quality research and analysis for organisations in the field. So far, leading corporate sustainability and responsible investment research groups in Belgium, France, Germany, Italy, Spain, Sweden and the UK have met the requirements of the Standard, including Ecodes, EIRIS, EthiFinance, GES, imug, Oekom, and Vigeo. Contact: AI CSRR www.csrr-qs.org
Financial Institutions fail to manage their ESG risks
Latest research from global responsible investment specialist EIRIS, announced on 20 April, finds only a quarter of companies are adequately managing their environmental, social and governance (ESG) risks. At risk? – How companies manage ESG issues at board level focuses on 2,200 companies listed on the FTSE All-Word Developed Index to track their progress on managing non-financial ESG risk issues over a three year period (2005-2008). Their key research findings are that the financial sector was the worst performer in terms of their failure to disclose evidence of ESG risk management, and there has been limited progress in ESG risk management between 2005 and 2008. Japanese companies showed the biggest improvement in their risk management systems, and that the resources sector is the best performer. Contact: EIRIS www.eiris.org
Norwegian sovereign fund blocks Dongfeng Motor Group
The Ministry of Finance in Norway has excluded the Chinese company Dongfeng Motor Group from the Norwegian Government Pension Fund. The move is based on advice from the Council on Ethics which concluded that the sale of trucks to the Burmese military would be in contravention of the ethical guidelines for the Government Pension Fund. The Ministry of Finance amended its ethical guidelines in October 2008. Minister of Finance, Kristin Halvorsen, said: “the fund’s assets can no longer be invested in companies that sell weapons or other military materials to Burma, and this is the first time the new exclusion criteria regarding the sale of weapons and military materials to Burma has been applied.” Contact: Ministry of Finance, Norway www.regjeringen.no
FairPensions unveils ESG performance scheme
The majority of the UK’s largest pension schemes apply environmental, social or corporate governance (ESG) criteria in the selection of fund managers, a report by campaigning organisation FairPensions revealed on 27 April. The survey, which polled the UK’s 30 largest schemes – found all respondents had statements recognising the potential impact of ESG issues on financial performance, although a third apparently do not apply these to the instruction, selection or reporting requirements from their fund managers. The report showed that 35% of respondents used the UN Principles for Responsible Investment signatory status as a criterion in fund manager selection and 25% used climate change competence as a criterion. Contact: FairPensions www.fairpensions.org.uk
Comment
These four news items neatly capture some of the different ways in which corporate responsibility plays out across society today. The starting point is often “soft legislation”, when government tries to encourage certain market activities without actually enforcing laws to prescribe corporate action. In this instance, it was an amendment to the Pensions Act that came into force in 2000. In essence, this simply required the trustees of occupational pension schemes to state their policy on socially responsible investment in their Statement of Investment Principles.
The effect of this apparently minor legal requirement shows up in the Fair Pensions research which reveals that all of the UK’s largest pension funds now have statements recognising the potential impacts of environmental, social and governance issues on financial performance.
Running parallel to government pressure through such enabling legislation, there is often voluntary action – frequently taken to ensure more stringent regulation does not follow. Here we note that the AI CSRR has developed a new voluntary quality standard for those organisations providing ratings on companies’ social and environmental performance. This is, in effect, the corporate watchdogs ensuring their own performance is beyond reproach.
Such voluntary action sometimes comes in response to public scrutiny and disclosure. And this is at the heart of the news from EIRIS which suggests that too few companies are adequately managing their social, environmental and governance risks.
Finally, for the worst performers there is always the threat of boycott and direct action. In this instance, we see the Norwegian Ministry of Finance divesting from a Chinese company that does not meet its ethical criteria.
In a nutshell, these four apparently disparate news items capture some of the key elements of the ‘life cycle’ of corporate responsibility issues. Companies will always face demands from different quarters – whether its government action, voluntary standards, public scrutiny or direct action. Knowing when and where such pressure is likely to come from, and responding accordingly, are important skills for a successful corporate responsibility practitioner.
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