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Corporate Social Responsibility
Socially Responsible Investing
* * * Report Calls for Stronger Investment Engagement by Universities with Ethics IssuesNew 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 The report cites “in 2004, over 20% of socially-oriented resolutions filed were withdrawn after dialogue effectively addressed investor concerns.”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* * * U.S. Investment Fund Presents Testimony Urging Corporate Enivronmental DisclosureCalifornia 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.” 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. 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* * * 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. Oil and Gas SectorConocoPhillips – Resolution Withdrawn Banking SectorWells Fargo – Resolution Withdrawn Insurance SectorHartford Insurance & Prudential Financial – Resolutions Withdrawn. Electric Power and Coal SectorsAllegheny Energy – Record High 39.5 Percent Support for Resolution TXU – Two Resolutions Withdrawn; One pending Buildings SectorD.R. Horton, Toll Brothers, Costco, Starwood – Resolutions Withdrawn Auto SectorGeneral Motors – Growing Shareholder Support for Climate Action * * * International Finance Corporation Makes Progress In First Year of Environment and Social StandardsEquator Principles Set the StandardIFC Also Huighlights Healthcare ProgramsOn 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.
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. * * * 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 Consultation 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 * * * The Growing Community Investing Industry Community Investing - What It IsBeyond stock market investing through “socially responsible” funds and distinct from charitable support for community development, lies the world of community investing (CI). Here individuals and institutions can participate directly in socially beneficial community projects through investments that offer then a financial return. Innovators in this area, for example, are the Community Investment Center and the Calvert Foundation. 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 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. Community Development Loan FundsMost 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. The Community Investing CenterA 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. Community Development Banks and Credit UnionsAnother 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. * source: socialfunds.com: http://www.socialfunds.com/page.cgi/article3.html Posted: 9/7/2006 * * * 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.” * * * Socially Responsible Investing (SRI) 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. * * * American International Group (AIG) Tops CalPERS 2005 Corporate Governance Focus List for Poor Corporate GovernanceThe 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. * * * Here are some useful websites if you're thinking about investing in a socially responsible fund:
>KLD Research & Analytics Inc.
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