Corporate Social Responsibility

Socially Responsible Investing

On this page

• CALpers Divests Stock in Companies involved in Sudan and Iran
  
• "A New Green Deal" - UNEP Asset Management Working Group Report
• Revenue Watch Institute Case Study Liberia and Extractive Industries
• Hedge Funds and Ethics - Knowledge @ Wharton Reports
• Anglo American Chairman Explains Position on Controversial Investment in Zimbabwe
• Interest in Socially Responsible Investment Stays Strong, Progress Report Says
• Report Calls for Stronger Investment Engagement by Universities with Ethics Issues
• U.S. Investment Fund Presents Testimony Urging Corporate Environmental Disclosure
• Investors Promote Climate Change Resolutions With Success - CERES Report
• dIFC Moves Ahead With Key CSR Principles & Health Initiatives
• FTSE4Good Climate Change Criteria
• European SRI Study 2006
• Community Investing
• New Mercer Study on SRI
• SRI in Asia
• AIG Worst in Corporate Governance
• BSR on Mining

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CALpers Adds to Sell-Off of Stocks in Firms that Deal with iran, Sudan.

The California Public Employees’ Retirement System (CalPERS) , the largest pension fund in the United States fund with approximately $236 billion in market assets - will divest shares of the remaining public companies operating in specific segments of the Iran and Sudan economies. New investments in these companies would be blocked as well.

Strong sanctions adopted in 2010 by the federal government, the United Nations and European Union prompted the withdrawal of several large multi-national oil and energy companies from Iran and Sudan.

CalPERS once had up to $2 billion invested in 47 companies in the two countries, both targets of California State divestment laws enacted in 2006 and 2007. Today, CalPERS owns shares valued at approximately $160 million in only eight companies that fall within the parameters of the State’s Iran and Sudan divestment acts.

CalPERS adopted an initial Sudan divestment policy in 2006. Since then, the pension fund has continued to engage companies consistent with its investment policies.

“The cost of continuing to hold the stock of these eight companies is greater than the value of divesting them,” said Rob Feckner, CalPERS Board President. “Consistent with our fiduciary duty as trustees, we’re taking this step in the best interest of the Fund.”

George Diehr, Chair of the CalPERS Investment Committee, said: “We plan to mitigate and compensate for the cost of executing trades by implementing sales over time rather than precipitously. We also will use the sales of these company shares to adjust an allocation overweight in our Global Equity portfolio, and avoid the continuing engagement costs.”
Posted 05/27/2011

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Calling for a ‘Global Green New Deal’

Sustainable Investing -- Report Points to Progress and Critical Issues

550 fund firms have signed key Principles for Responsible Investment (PRI), representing over US$18 trillion under management - but critical "green" issues are still not top priority for most of the industry, says the study by the Asset Management Working Group of the united Nations Envoironmental Program (UNEP) - The report: Fiduciary Responsibility – Legal and Practical Aspects of Integrating Environmental, Social and Governance Issue into Institutional Investment

The PRI, formulated in 2006, is an investor initiative in partnership with UNEP FI and the UN Global Compact, and
provides a framework through which institutional investors can publicly commit to incorporating Environmental, Social, and Governance (ESG) issues into mainstream investment decision-making and ownership practices.

Important endorsement from Norway's Finance Minister (Norway manages one of the world's largest sovereign wealth funds)

Kristin Halvorsen
Minister of Finance, Norwegian Ministry of Finance

“Given the strength of the scientific evidence linking human activity with climate change, and the associated economic, social and political risks, I believe it is prudent for fiduciaries of financial institutions to consider the implications of climate change for strategic asset allocation decisions. The Ministry of Finance has recently detailed plans to establish a new environmental investment programme—aimed at investments that can be expected to yield indisputable environmental benefits, such as climate-friendly energy, improving energy efficiency, carbon capture and storage, water technology and management of waste and pollution. In addition, the Ministry is going to participate in a comprehensive research project managed by the consulting firm Mercer, which aims at assessing the impact of climate change on financial markets, as well as implications for strategic asset allocation. This is set up as a collaborative project where other investors are encouraged to join in.”

UNEP's Perspective

Achim Steiner
United Nations Under-Secretary-General and Executive Director, United Nations Environment Programme

“To be able to sustain their wealth creation role, investors and companies have a fundamental role to play in supporting the transition to a green economy. The recent crisis cannot be an alibi for inaction, but a call for action.”

As UNEP points out, " 2009—A powerful group of asset managers, representing around USD 2 trillion in assets under management, are arguing that integrating environmental, social and governance (ESG) considerations into investment decisions is no longer just a luxury, but a legal responsibility. The new report with the United Nations Environment Programme (UNEP), underlines how the world’s largest institutional investors—such as pension funds, insurance companies, sovereign wealth funds, mutual funds and foundations—have a central role in assisting the transition to a low carbon and resource efficient Green Economy."

The Report's Key Messages from the Working Group
(also see report press releases from UNEP and from the Calvert Group press release)

We believe that through the integration of ESG issues into investment policymaking and decisionmaking, institutional investors—and the companies that they invest in—will be able to sustain their wealth creation role and play their fundamental role in the creation of a more sustainable global economy that invests in real and inclusive long-term growth, genuine prosperity and job creation, in line with UNEP’s Green Economy Initiative4 and the broad objectives of its ‘Global Green New Deal’:

• Make a major contribution to reviving the world economy, saving and creating jobs, and protecting vulnerable groups;
• Reduce carbon dependency and ecosystem degradation, putting economies on a path to clean and stable development;
• Further sustainable and inclusive growth, achieve the Millennium Development Goals, and end extreme poverty by 2015.
  
  

We are collectively calling for the following actions:

1. Advisors to institutional investors have a duty to proactively raise ESG issues within the advice that they provide, and that a responsible investment option should be the default position. Therefore, responsible investment, active ownership and the promotion of sustainable business practices should be a routine part of all investment arrangements, rather than the optional add-on which many consultants appear to treat it as.

2. The Principles for Responsible Investment (PRI) should specify that—in order to maintain their membership—all asset manager and asset owner signatories will be required to embed ESG issues in their legal contracts—such as investment management agreements, and Statements of Investment Principles or Investment Policy Statements. The PRI requires that ‘where consistent with fiduciary responsibilities’ signatories should commit to integrating ESG issues into investment analysis; to being active, responsible owners by promoting good corporate practice in these areas; and to reporting on what actions they have taken. We believe that embedding ESG issues in their legal contracts will help asset owners hold asset managers to account for delivering on this important aspect of asset management.
3. Similarly, all consultants, asset managers and other service providers that are signatories to the PRI should make a commitment to proactively raise ESG issues within their advisory and client take-on process.

4. Critically, the PRI monitors the performance of its signatories in delivering the six principles via a relatively detailed questionnaire. This involves an annual assessment that benchmarks each signatory’s performance in relation to each principle. This analysis is then shared with signatories, many of whom unfortunately do not share it with their clients, whose assets they manage. While reporting on performance to the PRI is one principle of the PRI, signatories are not required to share these performance assessments with their clients. As asset owners have a fiduciary duty in this area, their agents should be required to make this information available to them at no additional cost. Ultimately, this will lead to more informed market demand for responsible investment. 

 

The most important aspect of the PRI is arguably that institutional investors, collectively representing approximately USD 18 trillion in assets under management to date, have endorsed Principle 4, which states that:
‘We will promote acceptance and implementation of the Principles within the investment industry’, including possible concrete actions such as but not limited to following: ‘Include Principles-related requirements [ESG integration and engagement requirements] in requests for proposals (RFPs); and ‘Align investment mandates, monitoring procedures, performance indicators and incentive structures accordingly (for example, ensure investment management processes reflect long-term horizons when appropriate).’

Concluding views on fiduciaries, policymakers and civil society:

1. Fiduciaries have a duty to consider more actively the adoption of responsible investment strategies.

2. Fiduciaries must recognise that integrating ESG issues into investment and ownership processes is part of responsible investment, and is necessary to managing risk and evaluating opportunities for long-term investment.

3. Fiduciaries will increasingly come to understand the materiality of ESG issues and the systemic risk it poses, and the profound long-term costs of unsustainable development and its consequent impacts on the long-term value of their investment portfolios.

4. Fiduciaries will increasingly apply pressure to their asset managers to develop robust investment strategies that integrate ESG issues into financial analysis, and to engage with companies in order to encourage more responsible and sustainable business practices.

5. Global capital market policymakers should also make it clear that advisors to institutional investors have a duty to proactively raise ESG issues within the advice that they provide, and that a responsible investment option should be the default position. Furthermore, policymakers should ensure prudential regulatory frameworks that enable greater transparency and disclosure from institutional investors and their agents on the integration of ESG issues into their investment process, as well as from companies on their performance on ESG issues.

6. Finally, civil society institutions should collectively bolster their understanding of capital markets such that they can play a full role in ensuring that capital markets are sustainable and delivering responsible ownership.

The key question is whether these current trends among fiduciaries, along with commensurate actions from policymakers and civil society institutions, will reach a tipping point where the asset management industry is sufficiently engaged to help avert the Natural Resources Crisis. Some have argued that the ongoing financial crisis may not have been so deep or so protracted if institutional investors had been collectively willing to challenge the financial institutions that were at the heart of creating the systemic risks within the financial system. We also believe that one of the most important lessons from the crisis is that institutional investors’ responsible ownership needs to be strengthened in order to be fit for purpose. In conclusion, we believe that the global economy has now reached the point where ESG issues are a critical consideration for all institutional investors and their agents.

The UNEP FI Asset Management Working Group

Acuity Investment Management, Canada
AIG Investments, United States
Aviva Investors, United Kingdom
BNP Paribas Asset Management, France
Calvert Investments, United States
ClearBridge Advisors, United States
Eurizon Capital (Intesa Sanpaolo Group), Italy
Groupama Asset Management, France
Henderson Global Investors, United Kingdom
HSBC Global Asset Management, France
Mitsubishi UFJ Trust & Banking Corp., Japan
Nikko Asset Management, Japan
Pax World Management Corp., United States
RCM, United Kingdom
Santander Brasil Asset Management, Brazil

Posted 07/28/2009

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CASE STUDY: LIBERIA

Getting a Better Deal from the Extractive Sector
Report by Revenue Watch Institute
Funded by the Open Society Institute (OSI) Chairman George Soros

* Forewords to the reports By OSI Chairman George Soros and Liberian President Ellen Johnson Sirleaf

Links: Introduction to the Report from OSI and the full Report in pdf

In 2006, as part of its wider reconstruction effort, the government of Liberia conducted a review and renegotiation of its contracts with the Firestone rubber company and the ArcelorMittal steel company. The resulting amended contracts offered Liberia significant gains, in areas from taxes and corporate governance rules to environmental and social issues such as housing and education. The amended contracts were embraced not only by Liberia's legislature and general public, but also by Firestone and ArcelorMittal, the latter increasing its investment in Liberia from $1.0 to $1.5 billion. The successful negotiations have also caught the attention of other African governments seeking to ensure that their countries maximize value from natural resource concessions.

Getting a Better Deal from the Extractive Sector, funded by Open Society Institute partner Revenue Watch Institute, demonstrates the need for more equitable terms in natural resource contracts and the pivotal role that the contract process can play in economic recovery and development. The report was prepared for the Office of the President of Liberia by Revenue Watch senior economist Antoine Heuty and Raja Kaul, who was closely involved with Liberia Firestone and ArcelorMittal negotiations.

Foreword: by George Soros, Chairman, Open Society Institute

Liberia’s natural resources played a central role in the civil war that devastated the country between 1989 and 2003. The trade in conflict diamonds worsened a period of “development in reverse,” marked by a 90 percent collapse in GDP over less than two decades. To succeed in its postwar reconstruction, Liberia will now need to convert its vast natural resource wealth into sustainable economic and human development.

Revenue Watch Institute’s report, “Getting a Better Deal from the Extractive Sector,” highlights one critical aspect of Liberia’s strategy for economic recovery: the creation of more equitable terms in natural resource contracts. The report analyzes the review process for Liberia’s contracts with Firestone and ArcelorMittal. Liberia’s experience offers at least four important lessons for other resource-rich countries.

Countries require long-term vision for the role of extractive industries in development, which in turn demands clear objectives and assessment measures for contracts. The model agenda in Liberia’s Poverty Reduction Strategy offers a comprehensive revitalization plan for the natural resource-based economy, including rebuilt infrastructure, social services and employment generation. This strategy reaches well beyond the short-term interest in better fiscal terms to increase domestic resource mobilization. The example of the Buchanan port rehabilitation under the
revised terms of Liberia’s ArcelorMittal agreement illustrates the close link between development the contract review process.

When approached pragmatically, contract reviews and concession negotiation can benefit both government and industry. The amended Liberian contracts offer significant gains for the state and for the communities where Firestone and ArcelorMittal operate. The new agreements also pose no threat to the companies’ profitability, and pave the way for a more stable partnership between the companies and the Liberian government. ArcelorMittal’s decision to increase investment in Liberia by half a billion dollars shows plainly that better contractual terms and heightened investor interest can in fact go hand in hand.

Foreword by Ellen Johnson Sirleaf, President, Republic of Liberia

As we clearly articulated in our Lift Liberia Poverty Reduction Strategy, economic revitalization remains one of our four strategic pillars for poverty reduction. Consistent with our commitment to poverty reduction and in line with our economic growth and sustained development efforts, we announced at the onset of our administration a national policy to review all major concession agreements in the country. We made clear that this policy of review would apply to all sectors of our economy and was not an exercise to target specific industries or companies. Our policy of concession contract review was further supported by Liberia’s international partners and donor community under the Governance and Economic Management Assistance Program for Liberia signed by the former National Transition Government of Liberia.

Among many competing demands, and with uncertainty in some quarters about the likelihood of success for our efforts, we dedicated ourselves to a critical examination of our largest investment contracts, and undertook the process of renegotiating those agreements we believed could be revised to better serve our country. In the contracts covered by this report we were able, through our negotiation efforts, to secure stronger fiscal terms, increased revenues to the government, and additional employment opportunities for our people. In one contract, we were able to negotiate the transfer of ownership of the Buchanan port, an important piece of our national infrastructure, back to government while retaining investor commitment to rehabilitate the port.

Our constructive engagement with private sector partners in these renegotiations has successfully secured a better deal for our nation and people, while also bolstering trust and building investor confidence in our administration. We aggressively pursued a better deal for Liberia, but we were also careful to make certain that the renegotiations did not threaten the viability of the companies’ investments and, represented an opportunity for a better long-term working relationship between the companies and government.

The renegotiation process was not without its challenges, and offered us an opportunity to take a critical look at processes we use for negotiating major concession agreements. It provided us a chance to examine the legal and policy frameworks supporting the negotiation and the implementation of concession agreements in Liberia. The process also allowed us to look at the policy and institutional linkages between increased revenues from concession contracts and our commitment under our poverty reduction strategy to pro-poor policies and sustained economic development at the community level. In this regard we were able to successfully increase revenue commitments for local communities in both contracts studied by the report. These revenue commitments came in the way of local community funds, support to local industry, and increased investor spending on social benefits and infrastructure for the affected communities.

Our challenge, going forward, will be to ensure compliance with the terms of the renegotiated agreements through effective monitoring of both the fiscal and non-fiscal aspects of the contracts. We also want to make certain that the lessons learned during this process become institutionalized through our capacity development and legal reform efforts so that similar benefits can be achieved through all future negotiations. Through the generous support of the Revenue Watch Institute, this report was undertaken and comprehensively documents and examines the renegotiation processes we used, and offers some useful recommendations for institutionalizing the gains we experienced.

The report has served to further discussions within the government on the concession negotiation process. We are also using it to support of our efforts to, among other things, institutionalize the gains from our renegotiation activities through the revision of our Public Procurement Concessions Act. As we pursue our reform agenda, work to revitalize our economy and bring economic growth to our people, it remains important that we document and analyze the processes we use so that we leave a legacy of increased institutional capacity and best practices geared to Liberia’s sustainable development. This report represents an important contribution to this effort.

Posted 03/05/2009

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Hedging Their Bets: How Hedge Funds Can Curb Critics and Avoid Regulation - Wharton Professor Thomas Donaldson

Published: November 12, 2008 in Knowledge@Wharton

Hedge fund managers oversee $1.9 trillion in assets, but no one knows what they invest in or even what those assets are actually worth. That's because hedge funds are not regulated and consequently aren't required to make the same detailed financial disclosures that are required of publicly traded companies. This mystery product comes with a Rolex price-tag. Hedge fund managers generally keep 2% of invested assets and 20% of the profits, known as the "two and twenty rule."

The combination of potentially huge financial rewards and lack of transparency may foster ethical lapses, Thomas Donaldson, Wharton professor of legal studies and business ethics, said during a recent talk on hedge fund ethics. "Remember, some of these are hard-to-value assets, like collateralized debt obligations and credit-default swaps. When you're growing mushrooms in the dark, you might be tempted to paint a rosier picture."

Studies show that most hedge fund managers don't have their own money in their hedge funds, raising even more questions about whether they deserve their high pay and lower tax rates. The debate over taxes is so intense that when Donaldson suggested on CNBC that the tax treatment was unfair, the show's producers tagged him as "against prosperity."

Critics have also said that hedge funds "dupe investors with false or misleading claims," Donaldson said, especially about performance. Hedge fund managers woo investors by promising outsized returns, but research suggests that hedge funds as a group don't perform better than other kinds of investments. Donaldson believes few investors hear about such research, but are bombarded with stories of hedge fund managers who take home hundreds of millions in pay when they place winning bets. Even when a hedge fund loses money, the manager still keeps 2% of invested assets, about double the fee charged by a mutual fund. Prominent investor Warren Buffett, in a recent letter to Berkshire Hathaway shareowners, called hedge fund fees "grotesque" and warned shareholders not to expect high returns. Many investors may be unaware of how deeply fees eat into their returns. One study showed that if Buffett had charged hedge fund-style fees during his period as head of Berkshire Hathaway, he would have reaped $57 billion in fees, reducing the return to his investors by 90%.

Some members of Donaldson's audience questioned his use of the word "dupe." One asked whether it's a fair word to use when hedge fund investors don't seem interested in knowing how a manager makes money. Another asked whether it was necessary to worry about risks taken by hedge fund investors, who typically are wealthy enough to withstand large losses. And someone else pointed out that even public companies that were required to report the value of their portfolios often were unable or unwilling to do so, as the recent failures of Lehman Brothers and Bear Stearns show.

Donaldson acknowledged those points and said he would consider changing the word duping to something like "pressures to mislead." He also said that he, too, has few concerns about "a billionaire losing money." But hedge fund activities can ripple throughout the economy. "Hedge funds are alleged to aggravate social crises and cause significant social harm," Donaldson suggested. Many middle-income Americans are exposed to hedge funds through their pension funds, which invest in them. Banks also lend to hedge funds, which may compound risk in the financial system. "There is still a lot of noise buzzing around now that in addition to collateralized debt obligations and credit default swaps, banks may also have on their books [hedge fund] loans they don't know much about."

When the Long Term Capital Management hedge fund failed in 1999, the Federal Reserve was forced to cobble together a multibillion dollar bailout to head off the threat of economic collapse, for example. The meltdown of two Bear Stearns hedge funds in the summer of 2007 also helped trigger a broader financial panic. But it was clear long before then that the funds were on the verge of disaster. According to Donaldson, the economist and New York Times columnist Paul Krugman reported that the Bear Stearns funds "borrowed huge amounts, and invested the proceeds in questionable mortgage-backed securities ... and more than 60% of their net worth was tied up in exotic securities whose reported value was estimated by [the manager's] own team." In April 2008, the federal government bailed out the entire Bear Stearns firm just a few days after the company's chief executive had expressed confidence about its financial health. Federal Reserve chairman Ben Bernanke has worried that the complex web of relationships between banks and hedge funds may cloud the judgment and ability of either side to measure risk accurately.

A 'Microsocial Contract'

Regulation forcing disclosure at hedge funds may seem like an obvious solution, but Donaldson believes it wouldn't work for two reasons that he refers to as "regulatory recalcitrance." First, regulations tend to kill innovation. In the case of hedge funds, the negative effect may be so strong that it destroys most incentives for operating a hedge fund. When investing strategies become public, others copy them, reducing or eliminating the chance to generate big gains. "I want to suggest that there is something to the idea that smart people can create novel strategies, and that this is something to be protected. This is a social good."  Similarly, most societies have stopped trying to regulate the arts because such a move stifles creativity. "Soviet-era governments that attempted to do so paid a high price in the deterioration of artistic quality," Donaldson said.

The second reason: The data-gathering and monitoring required to force hedge fund disclosure would be too expensive and impossible to do effectively. The government would need data, not just from hedge funds, but from most large market participants. And once the government had the data, how would it gauge liquidity risks quickly and accurately? Most societies have abandoned trying to regulate sexual behavior for similar reasons, he said. "I'm not a raving rightist, but I do not want to prevent capitalistic acts between consenting adults." Many economic behaviors, such as bribery, are also difficult to prosecute because they are easily disguised, he said. Cash can be hidden in envelopes. Bribery can take the form of a job given to a relative.

That doesn't mean Donaldson thinks the risks related to hedge fund transparency are unsolvable. He proposes a solution he refers to as a "microsocial contract," an industry standard. In his paper, he said Nike and others in the apparel industry had worked with nonprofit groups and host-country governments to create codes of conduct that improved treatment of workers at suppliers in countries such as China. Another example: The Financial Industry Regulatory Authority oversees securities firms and is composed of industry members, not government. Hedge funds might agree to disclose how much leverage they have, for example. "Industries have been wonderfully adept at designing cooperative arrangements that boost value to industry and to customers and clients."

Some financial firms may worry that if they discuss such changes with competitors, the government will accuse them of antitrust violations. The government could allay this fear by reassuring companies that such discussions will not result in antitrust action, Donaldson noted, adding that as an incentive to talk, hedge funds should realize that avoiding discussions could instead result in restrictive legislation.

Posted 11/17/2008

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Anglo American Chairman Explains Position on Controversial Investment in Zimbabwe

Doing business in countries with controversial political regimes, or poor track records on human rights, is certainly a controversial issue.  The subject was raised during the aftermath of the devastating hurricane in Myanmar, where newspaper reports claim the military junta withheld supplies from its own people.  Similar criticisms are being launched against companies doing business for the upcoming 2008 Olympics in China, which has a less than pristine reputation on democracy and human rights. 

A new case has arisen over Anglo American’s decision to continue investment in Zimbabwe.  With much of the global community refusing to recognize Robert Mugabe as the nation’s established leader, The Times of London ran an article raising questions about Anglo American’s decision to invest $400 million in a mining project.  The article certainly provoked controversy.  Now, the non-executive Chairman of Anglo American, Mark Moody-Stuart, also the Chairman of the Foundation of the UN Global Compact, has issued a response outlining the company’s position on this issue. The following are excerpts from his letter to a journalist who submitted questions on the issue:

Dear Mr. Lee

I understand that you are questioning the basis for Anglo American's investment in building a platinum mine in Zimbabwe and asking what posture a company should adopt in dealing with a government which many people regard as illegitimate.

On the first issue, I suspect that you have seen reports originating with ‘The Times’ (of London) suggesting that Anglo was about to embark on a $400 million new investment in Zimbabwe and supported by a (unsurprising) chorus of disapproval from those who had been told this as fact. The reality is that the investment is not new - we have been quite transparently building this mine for the last five years, based on many years of previous exploration in long held permits. The Unki mine is probably still two years from going into production.

Bearing in mind the difficult operating conditions in Zimbabwe we have proceeded relatively slowly. We have developed our project in such a way as to avoid ‘propping-up’ the Government since we have gone out of our way to fund the in-country costs of the project from substantial sums that have already been trapped under Zimbabwean jurisdiction. We have also funded the purchase of capital equipment offshore so that foreign exchange has not been introduced by us into the country and we have thus not reduced those constraints on the government that flow from lack of foreign exchange. Moreover, since the mine is not yet in production we are not paying substantive taxes. Were we, on the other hand, to suspend the project then the Government could be expected to invoke their 'use it or lose it' legislation and potentially on-sell the asset to operators who are unlikely to observe the same sorts of social and environmental standards as Anglo American.

It is certainly not clear to me or the board of Anglo American that it would be a net gain for human rights if we were to abandon the 650 people who currently work at Unki, their dependents and the surrounding communities in relation to measures like food and diesel distribution, improving access to water and support for health and education services. At the same time, as explained, a withdrawal is in fact likely in the present circumstances to be of direct financial benefit to the government.

Turning to your more general question about what a company should do if it finds itself in a country where there is what is argued to be an illegitimate government. I find this difficult to answer on a theoretical basis since a lot will depend upon the nature of the business and the hope of redemption that exists for the country. Economic sanctions, for example, rarely bring about change by themselves. I think the key test that a company has to apply to its operations is whether it can do business whilst continuing to observe international norms and its own business principles. An alternative question might be whether it can – despite wider circumstances – do good in its immediate sphere of influence and, if it does, is its presence causing damage on other fronts through, for example, enabling the very survival of a Government which is guilty of serious abuses?

Extractive businesses are, of course, peculiarly vulnerable to these sorts of controversies. They have to go where the resources are and some of these countries are lacking any alternative catalyst for development. Moreover, for these resource to be brought to account and to generate wealth for a range of stakeholders (including investors, employees, communities, suppliers etc) requires significant up-front investment. This makes extractive investors comparatively immobile and choices are difficult if, for example, in the middle of the development a political crisis breaks out and things go wrong for five years of a potential mine life of 50 years. Is it more moral for a company with a commitment to human rights and decent standards to flee such country in order to avoid challenges to its reputation and to sell its assets or to allow them to fall into the hands of the regime? These things are not simple and any company operating in such circumstances must review its position on a regular basis. At the same time it is important that a company be open and transparent in reporting on all its activities, allowing its shareholders and other stakeholders to draw their own conclusions and, if need be, express disagreement or disapproval.

I trust that this clarifies Anglo American’s position. I believe our approach is fully consistent with our commitments to the principles of the Global Compact.

Best wishes,

Mark Moody-Stuart

Anglo American plc

Posted 7/16/08

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Interest in Socially Responsible Investment Stays Strong, Progress Report Says

UN Principles for Reponsible Investment issues its second progress report, which argues overall progress on implementation is positive

Despite a global economic downtown, The Principles for Responsible Investment has seen almost double the number of signatories in the past year, claims the second annual progress report on the newly created UN initiative to encourage socially responsible investment.  The sustained interest in environmental, social and governmental (ESG) issues has not declined, despite the state of the economy, which the executive directors from both participating organizations, the UN Environment Programme and the UN Global Compact, say means that more investment managers are recognizing the profit value in socially responsible investing.

The second annual progress report was recently released.  It covers in detail how both investment managers (IM) and asset owners (AO) from the seven representative global regions are faring in their implementation of the six principles.  The report states as of 1 May 2008, there were 362 signatories – 133 asset owners, 152 investment managers, and 77 professional service partners. This is up from around 180 a year before.  It also states that new signatories continue to be mainstream pension funds, insurance companies and investment managers, and new countries represented in the past year include Mexico, Italy, Spain, South Korea, Singapore and China (Hong Kong). 

The signatories were asked to fill out a questionnaire, so the survey results are based on the self-assessment of both the IMs and AOs.  The following is a summary of each principle and progress made on each one.

Principle 1:  Incorporation of ESG issues into investment analysis and the decision-making process.   

• Almost all signatories have formal policies/statements on integrations of ESG issues.  The majority of these are made public.  Only 13% of AOs have not created a formal policy or statement, down from 33% in 2006, and only 12% of IMs have not created one, down from 17% in 2006. 
  
  
• Most AOs claim to assess their investment manager’s capability to integrate ESG issues, but believe that IMs inflate the level of their own success.
  
  

Principle 2:  Dedication to being active owners and incorporation of ESG issues into ownership policies and practices.

• Proxy voting and engagement with companies continue to broaden.  Most signatories report either moderate or large use of proxy voting. 
  
  
• IMs are particularly involved in dialogue with companies and AOs are becoming increasingly involved (47% report they are engaged in dialogue with companies).   This type of activity is not as well developed in emerging markets.
  
  

Principle 3:  Encouragement of appropriate disclosure on ESG issues by the companies themselves. 

• IMs are the most likely to ask companies to standardize reporting, and most provide feedback to companies on their reporting. 
  
  
• Particular attention is being given to companies’ code of conduct.
  
  

Principle 4:  Promotion of acceptance and implementation of the principles within the investment community.

• When seeking an external manager, 84% of AOs say they consider ESG issues as part of the negotiations.  However, progress in measuring efforts to improve the integration of ESG issues by the external managers has been slow.
  
  
• More signatories could also do more to promote the principles.
  
  

Principle 5:  Working together to enhance the effectiveness of implementing the principles.

• There are a wide range of collaborative initiative that have been started in the past 12 months.  There are now more than 80 initiatives, including the Carbon Disclosure Project.
  
  

Principle 6:  Reporting on activities and on progress toward implementing the principles.

• A large majority of signatories disclose publicly their process of integrating ESG issues into the investment process.
  
  
• Disclosure on voting records is less widespread.
  
  
• Some progress has been made at measuring the impact investors have on company behavior, but more could be done in this area.
  
  

The survey also asked which principle was the most difficult for firms to implement, and most signatories, around 40%, thought the first principle was the most difficult.  The authors of the report speculate that this is because Principle 1 requires an overall cultural change within the firm and support from participants across the investment chain.  By contrast, signatories voted Principle 6 as the easiest to implement.  Again, the authors guessed this was probably because reporting is mainly an independent action.

The report said there was a wide variation in current status among the signatories.  Among those who just recently joined, many are continuing to work on basic implementation of the principles.  Of those signatories who joined earlier on, many are looking beyond the principles and increasing their engagement.  They have set goals such as “maximizing the impact of engagement,”  “develop policy positions,” and “make reporting more systemic.” 

Read the full report here.

Posted 6/30/08

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Report Calls for Stronger Investment Engagement by Universities with Ethics Issues

New Study from Amnesty International and the Responsible Endowments Coalition

“Unfortunately, institutions of higher learning currently lag behind public and private pension funds, foundations, and mutual funds in adopting strategies and policies for ESG [environmental, social, and governance] investing,” according to a report that aims to promote more involvement in socially responsible investing among U.S. institutions of higher education.

Amnesty International and the Responsible Endowments Coalition have published a handbook that advocates greater participation by U.S. university investment funds with the managements of the companies in which they have a stake.  The main policies they recommend are stronger shareholder advocacy, proactive resource allocation, and greater integration of university community members in investment strategies. The authors suggest that universities have the opportunity to build an investment portfolio of those companies that are truly raising the bar on environmental, social, and governance issues.

Shareholder Advocacy

The authors argue that university investment funds should push for ESG policies in the companies in which they are invested in line with mission of the funds without necessarily changing investment selections.  Just starting the process of filing a shareholder resolution, the report states, is often an effective way to spur companies into a more comprehensive dialogue. Management teams often prefer one-on-one negotiations than bringing the resolution to a vote. The report cites “in 2004, over 20% of socially-oriented resolutions filed were withdrawn after dialogue effectively addressed investor concerns.”

In drafting resolutions, the report emphasizes that it is important to tailor the proposal toward a specific policy action and not ordinary business actions. The Securities and Exchange Commission has stated “certain tasks are so fundamental to management's ability to run a company on a day-to-day basis that they could not, as a practical matter, be subject to direct shareholder oversight.”  Putting the resolution in the context of ordinary business actions could compromise the initiative unless the draft is clearly related to a specific company policy.

Proactive Resource Allocation

The report shows that the amount of money allocated to socially-responsible companies is considerable.  For example, the report states in 2005, close to $1.7 trillion dollars were managed under some type of social screen – either positive investment in companies that stood out on ESG issues or avoidance of companies that only meet, or don’t meet, baseline standards. 

Divesting in companies that would put a school’s reputation at risk for seemingly supporting a particularly harmful policy is another strategy investors may employ.  However, the report emphasizes that actively engaging with a company’s management to negotiate certain issues is the most effective tool to support corporate social responsibility rather than refraining from investment altogether.  Many examples are given in the report of shareholders who have successfully instituted change in this manner.

The report also stresses that investing in the community can directly support the areas in which colleges and universities are located, or in low-income areas in the U.S. or abroad, by providing capital to communities and individuals who are typically underserved by conventional lending institutions.

University Community Participation

In carrying out responsible investment, the report recommends soliciting the involvement of students, faculty, alumni, trustees, and administrators to ensure the views of the university community are reflected in investment strategies.  This could be arranged by creating committees composed of community members whose purpose is to empower the university to make choices in line with its mission. 

In order for these committees to function successfully, access to complete and accurate information about investment holdings is imperative. The report also states “generally, disclosure of a school’s investment holdings does not compromise financial returns or reveal any proprietary information regarding investment strategies.”  One recommendation in the report is to disclose investments via Internet, password-protected website, or University publication.  The recommended structure of these committees is discussed in more detail in the report.

Posted 12/4/07

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U.S. Investment Fund Presents Testimony Urging Corporate Enivronmental Disclosure

California Public Employees’ Retirement System's Chief Investment Officer, Russell Read, gave testimony on October 31, 2007 before the U.S. Senate Banking Subcommittee on Securities, Insurance and Investment on why there should be federal regulations requiring companies to disclose their actions on climate change.

The following are excerpts from the written testimony.

Chairman Reed, Ranking Member Allard and members of the Subcommittee, I am pleased to provide the perspective of an institutional investor on the issue of the necessary corporate disclosure of information related to climate change.

The California Public Employees’ Retirement System, known as CalPERS, provides pension and health benefits to 1.5 million state, local public agency and school employees, retirees and their families. A 13-member Board of Administration oversees the management of CalPERS assets, which total more than $250 billion.

The CalPERS Board recognizes that the way it deploys investment capital can not only shape the financial future of its investment portfolio, but also the future of our communities, our society, and our environment for decades to come. We also recognize that environmental responsibility and climate risk is a financial issue as well as a health security issue that affects everyone. 

Environmental Disclosure and Why It’s Important

It is important for the Senate and particularly the Subcommittee to address the issue of environmental disclosure by corporations. Increasing evidence indicates that climate change presents material risks to numerous sectors of the economy and to the financial market place. These risks may include operational, market, liabilities, policy, regulatory, and reputation risk. Accordingly, CalPERS has advocated for the right of shareowners to obtain information on environmental risks and opportunities to make informed investment decisions.

As a long-term investor, CalPERS believes that environmental issues can affect the performance of investment portfolios (to varying degrees across companies, sectors, regions, and asset classes through time.)

CalPERS is also interested in the sustainability of companies that may be threatened by climate change as well as those that can find new opportunities in a carbon-constrained market. Sustainability is potentially undermined by climate change. This is the concern that drives our environmental investment program -- including initiatives seeking transparent reporting of greenhouse gas emissions, the design of corporate measures to reduce those emissions, and clean technology investments.

Addressing climate change is part of our overall corporate governance policy, which says “to ensure sustainable long-term returns, companies should provide accurate and timely disclosure of environmental risks and opportunities, through adoption of policies or objectives, such as those associated with climate change."

We want portfolio companies that are well positioned to avoid the financial risks associated with climate change and that can capitalize on new opportunities emerging from the regulation of greenhouse gases, including alternative energy technologies.

But we cannot assess companies’ financial viability unless we know their potential exposure to climate change-related risks and potential benefits.

Why Voluntary Environmental Disclosure is Insufficient

CalPERS recognizes that some companies have chosen to include climate risk in voluntary sustainability reports or more general corporate responsibility reports, often filed in response to shareholder activism. However, there are many companies that do not provide voluntary disclosure of their climate risk.

Further, the information that is voluntarily disclosed often lacks the material information required by a reasonable investor to properly assess companies’ financial viability. The lack of SEC guidance on or a standardized format for climate risk disclosure has resulted in reports with very little consistency in the format or level of detail of information presented. A recent report found that “while almost all companies reported on climate change in their sustainability reports, on closer examination companies reported far more on potential opportunities rather than financial risks for their companies from climate change.”
  
Sustainability reports often include additional information on environmental trends and business strategies but they are primarily directed towards an audience of environmental interest groups and the general public, rather than investors. These reports more often acknowledge the science of climate change and discuss efforts to build awareness rather than presenting the specific effects of climate change on their performance and operations. 

Reporting must be consistent and must support comparisons among companies. The 10-K report is and will remain the gold standard for reporting information to investors, and investors need to know that material information relating to companies’ performance and operations will be in those required reports. Given the significance of climate risks for many corporations’ financial position and competitive prospects in a new, carbon-constrained environment, reporting on climate issues is no longer a mere virtue, but a legal obligation and a necessity for investors.

The Global Framework for Climate Risk Disclosure consists of four elements of disclosure that investors require in order to analyze a company’s business risks and opportunities resulting from climate change, as well as the company’s efforts to address those risks and opportunities. The four elements of disclosure include:

Emissions Disclosure: As an important first step in addressing climate risk, companies should disclose their total greenhouse gas emissions. Investors can use this emissions data to help approximate the risk companies may face from future climate change regulations. 

Strategic Analysis of Climate Risk and Emissions Management: Investors are looking for analysis that identifies companies’ future challenges and opportunities associated with climate change. Investors therefore seek management’s strategic analysis of climate risk, including a clear and straightforward statement about implications for competitiveness. Where relevant, the following issues should be addressed: access to resources, the timeframe that applies to the risk, and the firm’s plan for meeting any strategic challenges posed by climate risk. 

Assessment of Physical Risks of Climate Change: Climate Change is beginning to cause an array of physical effects, many of which can have significant implications for companies and their investors. To help investors analyze these risks, investors encourage companies to analyze and disclose material, physical effects that climate change may have on the company’s business and its operations, including their supply chain.

Analysis of Regulatory Risks: As governments begin to address climate change by adopting new regulations that limit greenhouse gas emissions, companies with direct or indirect emissions may face regulatory risks that could have significant implications. Investors seek to understand these risks and to assess the potential financial impacts of climate change regulations on the company.

All companies have climate risk and opportunity embedded in their operations that will vary across sectors. Regardless, all companies should be required to disclose the four elements highlighted in the Global Framework whether or not they are high emitters of greenhouse gas emissions. For example in the past year, CalPERS was approached by a major global soft drink company to discuss how climate change is affecting the company's water sourcing.  

The lack of federal policy on climate change causes uncertainty that creates risks for both investors and businesses as they engage in long-term strategic planning, asset management, and capital budgeting. To address this uncertainty, CalPERS played a key role in a national effort to seek federal regulations to address climate change. The “Call to Action” campaign, which was organized by CERES and the INCR and included both investors and businesses, held a press conference in Washington, D.C., in mid-March and issued a letter urging the federal government to take three specific actions to address the uncertainty created by the lack of national policy on climate change. The three action items are:

1. Establish a mandatory national policy to contain and reduce national greenhouse gas emissions economy-wide, making the sizable, sensible, long-term cuts that scientists and climate models suggest are urgently needed to avoid the worst and most costly impacts from climate change. This approach will also enable businesses and investors to make investments with a known long-term planning horizon. Wherever possible, this policy should utilize market-based mechanisms, such as cap-and-trade systems, to create an economy-wide carbon price.

2. Realign incentives and other national policies to achieve climate objectives, including a range of energy and transportation policy measures to encourage deployment of new and existing technologies at the necessary scale. Only governments can create the infrastructure needed to underpin the new clean energy system.

3. Guidance from the Securities and Exchange Commission and other financial regulatory bodies to businesses and investors on what material issues related to climate change companies should disclose in their regular financial reporting, so that investors can assess more accurately the effects of climate risk and opportunity in their portfolios.

We appreciate this opportunity to represent institutional investors on what we believe is a very important issue. Improved environmental disclosure is required in order for investors to properly assess the material impact of companies’ climate risk and opportunities on their portfolios.

See CalPERS website.

Posted 11/8/07

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Investors Achieve Record Results in 2007 in Spurring Corporate Action on Climate Change

A Report from CERES (includes case examples of major companies)

Ceres is a U.S. coalition working with companies to address sustainability challenges such as global climate change. Ceres directs the Investor Network on Climate Risk, an alliance of 60 institutional investors with collective assets totaling more than $4 trillion.

From the Report (released on August 13, 2007): Investors engaging with US companies on the financial risks and opportunities from climate change had their most successful year ever during the 2007 proxy season. A record 43 climate-related shareholder resolutions were filed with US companies this year, of which 15 led to positive actions by businesses such as ConocoPhillips, Wells Fargo and Hartford Insurance. Shareholders withdrew their resolutions after the companies made their climate-related commitments.

Remaining resolutions that went to a vote received record high average voting support of 21.6 percent, including 39.5 percent support for a resolution filed with Allegheny Energy, the highest vote ever on a global warming shareholder resolution.

The ’07 proxy season also was marked by the first-ever filing of seven resolutions requesting that companies, including Exxon Mobil, set specific greenhouse gas reduction targets from their operations and products. These resolutions also received strong support, including 31.1 percent support at Exxon Mobil and 29.1 percent at General Motors.

“It’s clear from these results that growing investor pressure is prompting more US companies to tackle climate change more aggressively,” said Mindy S. Lubber, president of Ceres.  “The increasing support for our resolutions shows that investors want greater transparency about climate risks and information about how companies are preparing to meet the challenges and seize the opportunities,” said Leslie Lowe, director of the Energy and Environment Program at the Interfaith Center on Corporate Responsibility (ICCR), an association of 275 faith-based institutional investors, which also helped coordinate this year’s resolutions.

The 43 resolutions, seeking greater disclosure from companies on their responses and strategies to address climate-related business trends, were filed by state and city pension funds and labor, foundation, religious and other institutional shareholders. The filers collectively manage more than $200 billion in assets. Of the resolutions that were filed, 15 were withdrawn by shareholders after companies responded positively to their requests and 15 went to a vote at corporate annual meetings. The remaining resolutions were either omitted by the SEC or were withdrawn by shareholders due to technicalities. Below are highlights from the ’07 proxy season:

Oil and Gas Sector

ConocoPhillips – Resolution Withdrawn
Trillium Asset Management and the North Carolina State Treasurer withdrew their resolution after the oil company announced its support for an aggressive mandatory federal policy to reduce greenhouse gas emissions, committed to spend $300 million on low-carbon research, including alternative fuels, committed to set a greenhouse gas reduction target and took numerous other measures to reduce its climate impact.

Anadarko – Resolution Withdrawn
In the wake of major acquisitions that boosted the company’s size by 50 percent, shareholders filed a resolution to encourage Anadarko to set a GHG emissions reduction goal for the newly enlarged entity.  Anadarko, already a leader among US oil companies in addressing climate change, reaffirmed the company’s commitment to climate risk disclosure, arranging investor meetings with senior executives, and pledging to set a GHG reduction target by June 2008.

Exxon Mobil – 31.1 Percent Support for Resolution
Shareholders owning over $120 billion – 31.1 percent – of Exxon Mobil stock supported a resolution requesting the board of directors adopt quantitative goals based on current technologies for reducing total GHG emissions from the company’s products and operations.  The resolution was filed by the Sisters of St. Dominic of Caldwell, New Jersey, and resulted in the highest support for a climate resolution in the company’s history.  Investors are concerned that Exxon Mobil has made little progress and continues to lag far behind competitors such as ConocoPhillips, Chevron, and Royal Dutch Shell and BP in addressing climate risks and escalating its renewable energy investments.

Ultra Petroleum – 31 Percent Support for Resolution
Shareholders owning 31 percent of the company’s stock supported a resolution filed by the Nathan Cummings Foundation requesting that a committee of independent directors of the board assess how the company is responding to rising regulatory, competitive and public pressure to significantly reduce carbon dioxide and other greenhouse gas emissions and report to shareholders by Dec. 1, 2007.

Banking Sector

Wells Fargo – Resolution Withdrawn
Ten shareholders, led by the Service Employees International Union (SEIU) Master Trust, withdrew a resolution requesting that the bank set GHG emission reduction goals after the company committed to completing GHG assessments of key lending portfolios including agriculture, primary energy production and power generation. 

Insurance Sector

Hartford Insurance & Prudential Financial – Resolutions Withdrawn.
Calvert, one of the nation’s largest socially responsible mutual fund firms, withdrew resolutions at Hartford Insurance and Prudential Financial after the two insurance companies agreed to improve their public reporting and disclosure regarding the potential financial risks they face from climate change and strategies for mitigating those risks.  The companies specifically agreed to respond to a climate risk disclosure questionnaire sent to companies each year by the Carbon Disclosure Project (CDP) and to disclose their assessment of the business impacts of climate change. Calvert also filed a shareholder resolution with Ace Limited. Although the company challenged the resolution at the SEC, shareholders are encouraged because ACE has recently joined the EPA Climate Leaders program and CEO Evan Greenberg has spoken publicly about the importance of addressing climate change.

Allegheny Energy – Record High 39.5 Percent Support for Resolution
Allegheny Energy shareholders gave record high support to a resolution filed by the New York City Pension Funds requesting the PA-based electric power company produce a report on how it plans to reduce GHG emissions as pressure mounts from both public and regulatory bodies on climate issues. The resolution received the highest vote of any climate-related resolution.

TXU – Two Resolutions Withdrawn; One pending
Investors filed three resolutions with TXU which helped to ensure that a new climate change policy was included in the terms of the proposed acquisition of TXU by private equity firms Kohlberg Kravis Roberts & Co. (KKR) and Texas Pacific Group (TPG).  The New York City Pension Funds, lead filer of one of the three climate resolutions, commended the Texas company in March 2007 for agreeing to reduce the number of coal-fired power plants it planned to build from 11 to three, preventing the release of 56 million tons of annual carbon emissions. TXU also announced that it would explore renewable energy sources and invest in alternative energy technologies and create an independent Sustainable Energy Advisory Board.   A third resolution, filed by the Benedictine Sisters of Boerne, TX, asking the company to set emissions reductions targets for greenhouse gases and mercury will be voted on at TXU’s annual meeting on Sept. 7.

Buildings Sector

D.R. Horton, Toll Brothers, Costco,  Starwood – Resolutions Withdrawn
In response to shareholder requests two leading homebuilders, the nation’s largest warehouse club chain and a large hotel chain agreed to significantly expand reporting and disclosure on energy efficiency performance and other climate change related topics. Resolutions with the four companies were withdrawn as a result. Resolutions asking for similar disclosure were voted on at Kroger Co. and Boston Properties and received 37.4 percent and 32.6 percent support, respectively. Buildings account for 40 percent of energy and 70 percent of electricity used in the United States annually. Therefore, the sector presents enormous opportunity for energy and financial savings. The resolutions were filed by the Nathan Cummings Foundation and several religious filers.

Auto Sector

General Motors – Growing Shareholder Support for Climate Action
Just as General Motors launched a new national advertising campaign against legislative proposals to increase fuel economy standards, leading institutional investors called on GM to establish concrete goals to reduce GHGs emitted by both its products and operations. Just over 29 percent of GM’s shareholders voted in favor of the resolution filed by the Sisters of St. Dominic of Caldwell, NJ. 

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International Finance Corporation Makes Progress In First Year of Environment and Social Standards

Equator Principles Set the Standard

IFC Also Huighlights Healthcare Programs

On May 14, 2007 the World Bank's private sector affiliate, the International finance Corporation (IFC) said that within one year of their implementation its environmental and social standards have emerged as the global benchmark in project financing. The standards, which are the basis for the Equator Principles, are used in close to 90 percent of project finance in emerging markets – representing $28 billion in 2006. Adherence to the standards has grown among banks and public financial institutions. Discussions about benchmarking projects against the IFC standards are ongoing among export credit agencies, and insurance companies and investors are considering ways to integrate the standards in their work.

“We are creating a level playing field, in which financial institutions abide by the same environmental and social standards.  Where once they competed solely on price, now they are starting to compete through innovative financing for environmentally sustainable projects. This is one of the most important initiatives in the financial sector,” said Lars Thunell, IFC Executive Vice President.
The Equator Principles are a voluntary set of principles for environmental and social risk management in project finance, based on IFC’s standards. To date, 51 financial institutions have adopted the Equator Principles.

For more information, see the Equator Principles.

IFC’s Environmental, Health, and Safety Guidelines

Handbook on Stakeholder Engagement

IFC Promotes Best Practices in Private Health Care

IFC says its goal is to increase access to health services for people at all income levels, improve quality and efficiency in health care, encourage the international exchange of best practices, help retain health professionals in developing countries, and support collaboration between public and private health sectors.

In April 2007, IFC provided a forum for sharing best practices in health care at an international conference, "Private Health Care in Emerging Markets—Evolution or Revolution?" Held in Washington, D.C., the conference brought together more than 100 participants from over 20 countries to discuss changes in the health sector, business prospects, and ways that companies could benefit from shared experiences and best practices.

Panel discussions and presentations by leading analysts and operators provided information for decision-makers on competing in the global marketplace. Major themes included innovative models, franchising, health cooperatives, insurance, and traveling overseas for medical treatment with special focus on the experiences of companies from Brazil, China, India, Kenya, Nigeria, Saudi Arabia, South Africa, Thailand, Turkey, and the United Arab Emirates.

Opening the conference, Lars Thunell, head of IFC, said, "Nowhere is the need for private sector financing felt more keenly than in the emerging markets, where demand is presenting opportunities both for local providers and multinationals." He noted that the title of the conference reflects the remarkable developments and trends underway in private health care in emerging markets.

Competing in the Global Marketplace

A good example of a global competitor in the health care industry is Netcare, the largest private sector hospital company in South Africa, which now serves both public and private patients in the United Kingdom.

Nigerian doctors and nurses are also traveling to India for further training. Fola Laoye, CEO of Hygeia Nigeria, who made a presentation on pioneering health care in West Africa, said, "The combination of demand-driven health insurance schemes, more government expenditures on health, and an increase in donor support would create opportunities for improved supply of health care facilities and health care management systems."

In India, health care is expected to be a $2.4 billion industry by 2012, with patients from all over the world traveling to the country for surgeries. Another emerging trend is interregional collaboration, with health care companies, such as Apollo Hospitals, offering medical training and advice to Hygeia's Lagoon Hospitals in Nigeria.

In Thailand, Bumrungrad Hospital is contracting with health care insurers in the United States to send patients for elective procedures. "Thailand is a leading destination for patients who travel for medical treatment," said Curtis J. Schroeder, Group CEO, Bumrungrad. Nearly half a million foreign patients were treated by Bumrungrad Hospital last year, more than any health care company in the world. Bumrungrad operates the Asian International Hospital, an IFC client.

Investments in Saudi German Hospitals in Egypt and Yemen will help raise medical care standards in both countries. "A belief in the need for interregional investment and an interest in bringing better medical services to underdeveloped markets in the region drove Saudi German Hospitals Group," said its president, Sobhi A. Batterjee. The company, a major participant in Saudi Arabia's health sector since 1988, owns and operates five hospitals in the country.

"The need for better access to health care is acute in Turkey," according to Pinar Lembet, deputy hospital director of Turkey's Acibadem Healthcare Group, who addressed the conference on the needs of international health care investors. Lembet disclosed that Acibadem now ranks among Turkey's top 500 companies with strong brand recognition.

Guy Ellena, IFC Health and Education Director, who chaired the conference, acknowledged the trend for private health care to cross national borders and the strong interest in partnering with regional players in Brazil, India, Mexico, Turkey, and the Middle East. He concluded that IFC's biannual health conference had become a landmark event for the industry and a unique opportunity for senior executives to share experiences and best practices.

Click here for more information on the IFC healthcare conference.

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FTSE4Good Launches New Climate Change Criteria

On February 7, 2007 in response to increasing concern by investors and companies over climate change, the FTSE Group (FTSE), a global index provider owned by the Financial Times and New York Stock Exchange, launched a new set of climate change criteria for its FTSE4Good Index Series – which identifies companies with positive records of CSR practices for investors and for companies seeking best practice frameworks. By assessing companies' climate change performance, the criteria aim to help offset corporate contributions to climate change.

Implementation and Time Frame of the Criteria
The new criteria -  developed in conjunction with The Climate Group, The Institutional Investors Group on Climate Change, The Carbon Trust, Forum for the Future and the World Wildlife Fund - will be implemented into the index series on a phased basis over two years, with the first deadline in January 2008.  FTSE’s in-house Responsible Investment Unit will work directly with affected companies to help them understand and comply with the criteria and time frames.  Of the over 250 companies FTSE identified as having the highest impact on climate change, under 50 are expected to already meet the new climate change strategy, system, disclosure and performance requirements. 

Consultation
According to FTSE, the criteria are the reflect over 100 responses from corporations, fund managers, non-government organisations and private investors which were received during a public climate change consultation carried out by FTSE during 2006.

For more information about the FTSE4Good index series, including full details of the new climate criteria and its implementation timetable, visit www.ftse.com/ftse4good.

Posted 2/7/07

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The European Social Investment Forum's
 European SRI Study 2006

To download as .pdf

On September 12, 2006 the European Social Investment Forum, an umbrella association that covers socially responsible investment issues at the European level, published its, “European SRI Study 2006,” which analyses the scale and progress of European socially responsible investment (SRI) across nine countries (Austria, Belgium, France, Germany, Italy, the Netherlands, Spain, Switzerland and the United Kingdom). The report provides an overview of the EU SRI Market, key features of SRI in each European country, an analysis of the SRI market’s evolution since 2003 (when the report was last published) and market predictions for the future.

According to the study, which divides its findings by country, Europe’s SRI market is now estimated at approximately 1 trillion Euros, representing as much as 10-15% of the total European funds under management and a 36% growth since December 31, 2002, with Spain and Austria have showing the greatest increases.

The study also reports growing diversification in the types of SRI institutional investors, which constitute the bulk of Europe’s SRI community, are making, as well as trends towards innovation in SRI strategies. The study also shows a growing demand by European pension funds that their assets be managed with social, environmental, and governance considerations in mind.

What is Driving the Increase?
According to the report, three key factors are driving the growth in SRI in Europe. These are:

1. the increased credibility of the business case in the financial community;
2. business and financial services regulation that requires more transparency and incorporation of social/environmental/ethical (SEE) issues and;
3. a growing use by the fund management community of strategies such as Engagement (which relies on the influence of investors and the rights of ownership, mainly taking the form of dialogue between investors and companies on issues of concern, sometimes extend to voting practices) and Integration (the explicit inclusion by asset managers of Corporate Governance/SEE-risk into traditional financial analysis) which may be used across all assets, regardless of whether they are specifically subjected to SRI mandates.

To view the full report please follow this link on Eurosif’s website.


Posted 9/15/06

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The Growing Community Investing Industry

To download as .pdf

As the Hurricane Katrina disaster in New Orleans has shown, there is a need for direct investment in reconstruction and rehabilitation that is additional to public sector grants and charitable giving. Structuring investments here, for example, that both do good and, the same time, provide a financial return is illustrative of what community investing can be.

Some of the current approaches are, in effect, hybrids in that they yield investors a below-market return and may also involve greater risk than investments in ordinary securities. The appeal is that unlike an investment in a “green” mutual fund, for example, the investor secures a more direct, tangible and measurable “social return.” Mutual fund oriented socially responsible investing aims to maximize financial returns while simultaneously promoting CSR within companies. Community investments, meanwhile, channel money into local development projects within traditionally poor and disadvantaged populations. These projects range from promoting public health and sanitation, to economic empowerment in both urban and rural communities, to inner-city housing, day-care and renewal.

How it Works
There are several types of organizations that engage in community investing most of which fall under the category of Community Development Financial Institutions (CDFIs). CDFIs vary from non-profits such as loan funds, micro-finance institutions, and community development corporations, to global banks and credit unions. Depending on the CDFI, community investments can be small in scale, often as little as U.S. $1,000. They are typically made through checking accounts, certificate of deposits or promissory notes and offer returns of up to 5 percent.

The Calvert Foundation
One approach to community investing is provided by the foundation arm of the Calvert Group – one of the largest investment firms specializing in socially responsible mutual fund investing. The Calvert Foundation is a leader in making community investments.

It is an independent, non-profit umbrella facility for individuals and institutions seeking to place capital on softer terms to finance affordable homes, fund small and micro businesses and, and provide the investment capital people need to work themselves out of poverty. Seeking to create "community investment as a new asset class in the financial services industry”, it offers a variety of financial instruments, web-based information services and philanthropic products including Calvert Community Investment Notes ™, which are designed to pay a fixed below-market rate of interest, determined at the time the investment is made, for the term of the note, a Community Investment Profile Database of over 100 CI organizations, and Community Giftshares, charitable donations which become part of the foundation’s community development portfolio.

Most of the institutions engaged in community investing, unlike Calvert, are not directly related to mutual fund investment groups and have direct community activities as their core mission.  In fact, there are more than 300 community development loan funds (CDLFs) in the U.S.*, which lend at below market rates to communities that would not ordinarily have access to capital in order to finance affordable housing, small businesses, and public services. In order to protect investments, CDLFs often provide technical assistance to borrowers, enact loan loss reserves (which often come from outside grants), and practice strict borrower selection processes. Other precautions include enlisting investors that volunteer to accept the first loss of their principal should the CDLF experience losses that exceed their reserves, and programs of "shared" loss so that any financial loss is shared equally by all investors.

A key resource for the growing universe of community investment organizations is the Community Investing Center (CIC). This is a Joint Project of the Social Investment Forum, a U.S. non-profit whose stated goal is to promote the concept, practice and growth of socially responsible investing, and Co-Op America, a U.S. advocacy non-profit whose stated mission is “to harness economic power—the strength of consumers, investors, businesses, and the marketplace—to create a socially just and environmentally sustainable society.”

CIC provides guidance and resources to investors interested in community investing. According to CIC, its online database of over 500 community investment institutions is the largest available online. Its website, www.communityinvest.org also provides model portfolios, press releases, impact calculators, publications, educational primers and research pieces, such as its regularly updated, Community Investing Trends Report.

It runs a “1% or More in Community Campaign,” the goal of which is to help grow the community investing industry to more than $25 billion in assets in 2007 by encouraging individuals and institutions to move at least 1% of their managed assets into community investments (according to the CIC between 2000 and 2005, the community investing industry grew from $5.4 billion to $19.6 billion). CIC publishes an honor roll on its website of Financial Advisors & Money Managers, mutual funds, and institutional investors who have done so. In 2006 an additional $2 billion in community investments was channeled through this program in 2006.

Another approach to community investing is provided by community development banks and credit unions, which are insured and regulated either by states or, if federally chartered, by the Office of the Comptroller of the Currency. They provide accounts and certificates of deposits with market-rate returns, while lending only to local poor communities, often offering banking services to those to whom other banks won’t. Community Development banks are for-profit and are far less common than community credit unions, which are non-profit. 

Be it through mutual funds, special investment organizations, or banks and credit unions, the flow of finance to poor communities across America may well be set to grow significantly. Some mutual funds, for example, are providing small percentages of the resources under their management to community investments, thus increasing their social impact while limiting the total impact of the investment on the total return of the fund.  Additional innovations in this whole sector of socially responsible investing are likely.

For information on more specific facets of the community investing movement, see Business for Social Responsibility’s website section on Community Investing which provides issue briefs related to Community Investing.

* source: socialfunds.com: http://www.socialfunds.com/page.cgi/article3.html

Posted: 9/7/2006

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New Study Shows Rising Importance of ESG Issues in Investments

A new survey by a leading investment firm shows rising investor attention to environmental, social and corporate governance issues (ESG) and predicts promising client pressures on the way consultants consider companies.

A new survey by the Mercer Investment Consulting, which operates in over 35 countries, showed that 65% of investment managers globally believe the effects of globalization are material to mainstream asset performance, while 62% believe the same of corporate governance issues. 15% believe environmental issues are significant to their business, a number which the survey shows is expected to grow considerably in the next five years.

The study asked 157 investment firms around the world (in total these firms, manage over US $20 trillion) how important environmental, social and corporate governance (ESG) issues are to investment performance, and what their expected client demands for attention to these issues are.

“The environmental and social affects of globalization are being experienced by governments, local communities, and businesses across all regions, as pressures on resources grow. Similarly, corporate scandals have hit headlines in almost all regions, so it is not surprising that these two issues are viewed as the most important responsible investment factors by investment managers,” said Jane Ambachtsheer, Global Head of Mercer IC's Responsible Investment business.

31% of investment managers globally expect client demand for specialist investment strategies built on ESG examination to increase in the next three years, while 38% expect clients to demand that ESG issues be integrated into their standard investment processes. Client demand for specialist ESG services is perceived to be the highest in Europe (39%) followed by the UK and Canada.

Tim Gardener, Global Head of Mercer Investment Consulting, said, “Demand for specialist responsible investment products is likely to depend on the rate at which ESG analysis is incorporated into the mainstream investment process. If managers move rapidly to integrate ESG factors into their processes because of client pressures or otherwise, it is logical that the demand for specialist products may decrease.”

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Socially Responsible Investing in Asia

Asian Corporate Governance Association has released a major new report on developments across Asia. The report, overall, has a focus on investors and its perspectives on corporate governance are especially interesting. The following is an excerpt from the report for ACGA’s members:

Country scores - Lowered

A clearer pattern is emerging about the objective status of corporate governance standards and practices in Asia. Whereas a few years ago financial regulators were being quickly praised for introducing new rules and regulations on corporate governance, today it is apparent that many of these rules and best practices have only a limited effect on corporate behaviour. Some of the more important mandatory rules are not being implemented by listed companies or, if implemented, not carried out effectively.

Conversely, in the area of enforcement, traditionally seen as the weak spot in Asian regulatory regimes, it is possible to discern a steady improvement, albeit from a low base. The wide gap between the scores for rules and enforcement is therefore narrowing. Overall, there are two main results from our country scores this year.

The ranking of countries has largely stayed the same as last year, with the exception that Korea has fallen one notch - it is now below Taiwan. And the weighted scores for most countries have trended downwards. Lower scores this year do not equate to a decline in objective corporate governance standards.

On the contrary, we believe that most countries have continued to improve. What they largely reflect is an even more rigorous survey methodology being used this year compared to last. In effect, we are saying that scores in previous years were on the generous side and the actual quality of corporate governance in most Asian markets is somewhat lower than previously assessed.

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American International Group (AIG) Tops CalPERS 2005 Corporate Governance Focus List for Poor Corporate Governance

The California Public Employees’ Retirement System (CalPERS) named five U.S. companies in April 2005 to its “Focus List” of poor financial and corporate governance performers. American International Group (AIG), based in New York, tops the list following allegations of widespread accounting fraud and other corruption that cost CalPERS more than $240 million in losses. Also on the list are AT&T of Bedminster, New Jersey; Delphi in Troy, Michigan; Novell in Waltham, Massachusetts; and Weyerhaeuser in Federal Way, Washington.

“These five companies are now on our radar screen for their poor corporate governance and in many cases poor performance that has economically damaged shareowners,” said Rob Feckner, President of the CalPERS Board. “We will press for needed reforms to restore long-term profitability and investor confidence.”

You can find out more about the list and the five companies by following this link to the CalPERS website.

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Business for Social Responsibility Reports on Ethics and Canadian Mining Companies

BSR notes a report by Canadian socially responsible investment firm The Ethical Funds Co. that finds that only four Canadian extractives firms ( Alcan Inc., Enbridge Inc., Nexen Inc. and Talisman Energy Inc.) are adequately addressing legal, financial and reputational risks of operating in countries where human rights abuses occur. According to SocialFunds, Ethical Funds assessed 152 countries on their level of human rights risk. Nine countries, including Burma and Colombia, were deemed "extreme risk" and 25 countries, including China, Indonesia and Nigeria, were deemed "high risk." Ethical Funds then surveyed extractive firms on the S&P/TSX Composite Index and found that 24 Canadian firms operate in six extreme risk countries and 11 operate in high risk countries. The report recommends that firms doing so establish a human rights policy along with management mechanisms to implement the policy. Other recommendations include adopting the Voluntary Principles on Security and Human Rights and the Extractive Industry Transparency Initiative, which requires firms to disclose royalty and tax payments to host governments. The full report -- entitled "Canadian Energy and Mining Companies: Navigating International Humanitarian Law in the 21st Century" -- is available at www.ethicalfunds.com

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