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FTSE4Good Index Launches New Countering Bribery Criteria

“The FTSE4Good criteria signal that countering bribery is an important part of the corporate social responsibility agenda. If we are to achieve the Millennium Development Goals, then bribery must be tackled and the FTSE4Good criteria are an important contribution towards this aim.”

- Jeremy Brooks, Board Director of Transparency International

In this summary -  details on the new bribery criteria, and background on the FTSE4Good Index.

FTSE Group (Financial Times Stock Exchange Group), the leading UK index provider, will launch, effective, July 1, 2006, a new set of criteria to counter bribery for its FTSE4Good Index  - the leading socially responsible investing (SRI) index in the UK.

The criteria, which FTSE claimed in its February 22, 2006 press release is the most developed and transparent counter-bribery criteria in any CSR index. The new criteria take the Transparency International Business Principles for Countering Bribery as a starting point. Bribery is defined as “an offer or receipt of any gift, loan, fee, reward or other advantage to or from any person as an inducement to do something which is dishonest, illegal or a breach of trust in the conduct of the enterprise's business.”

The Countering Bribery criteria were developed on the basis of broad consultation over an 18-month period involving input from many stakeholders, including corporations, fund managers, government representatives, NGOs, business associations and private investors (see more detail below).

Background

FTSE4Good has three goals:

  • To provide a tool for responsible investors to identify and invest in companies that meet globally recognized corporate responsibility standards.
  • To provide asset managers with a SRI benchmark and a tool for SRI practices.
  • To contribute to the development of responsible business practice around the world by encouraging companies to strive to meet the criteria.

 

FTSE4Good can be used in four ways:

  • Investment – a basis for socially responsible financial instruments and fund products.
  • Research – a research tool to identify socially responsible companies.
  • Reference – a reference tool to provide companies with a transparent and evolving global corporate responsibility standard to aspire to and surpass.
  • Benchmarking - a benchmark index to track the performance of socially responsible investment portfolios.

 

The FTSE4Good Index is revised semi-annually through the scrutiny of annual reports and other publicly available material, questionnaires and the research of the Ethical Investment Research Service (EIRIS).

Before the introduction of the Countering Bribery Criteria, the FTSE4Good Index consisted of four other criteria sets: the Environmental Criteria, the Social & Stakeholder Criteria, the Human Rights Criteria, and the Supply Chain and Labour Standards Criteria.

 
The Bribery Criteria

“Operating in an open and transparent environment is essential for good business practice, both in the UK and abroad, and the launch of the FTSE4GOOD criteria is another strong step towards improving international business behaviour and combating bribery.  Tackling bribery remains a key component of the UK Government’s efforts to improve governance and sustainable development.”

-Gareth Thomas, UK International Development Minister

The criteria will be implemented into the index series on a phased basis over two years, starting July 1, 2006.  One key challenge is that an estimated 130 companies out of about  200 covered by FTSE that have been identified as having the highest level of exposure to potential bribery, may need to take actions to meet the new criteria, such as putting new policies and management systems in place to mitigate bribery risk.  FTSE’s in-house Responsible Investment Unit will be working with companies to explain the criteria and what they have to do to meet it. 

FTSE has established three levels of bribery risk (high, medium, or low) that are being analyzed in terms of three filters or screens: 1) its sector; 2) the country/countries it operates in; and, 3) its involvement in public contracts.

The countries determined to be at highest risk for bribery are based on the World Bank’s Governance Indicators and the Transparency International Corruption Perceptions Index.

Some of the sectors found to be at the highest risk for bribery were:

Oil and Gas Producers; Oil Equipment, Services, and Distribution; Chemicals; Industrial Metals; Mining; Construction and Materials; Aerospace and Defense; General Industrials; Electronic & Electrical Equipment; Industrial Engineering; Support Services; Electricity; Gas, Water & Multi-Utilities; Pharmaceuticals; Hotels; Fixed Line Telecommunications; Mobile Telecommunications; Software and Computer Services; Technology; Hardware & Equipment.

In order to be rated, a companies’ policy, management, and reporting is measured according to the following criteria:

Policy

Management

Reporting

- Prohibits giving and receiving bribes;
- Commits to obeying all relevant laws;
- Commits to restricting and controls facilitation payments
- Commits to restricting giving and receiving gifts
- Policy is publicly available

- Communicates policy to employees;
- Trains relevant employees;
- Compliance mechanisms (e.g. assurance, audits, monitoring, board reports)
- Provides secure communication channels for employees to seek advice or voice concerns (e.g. hotlines, advicelines, whistle-blowing procedures for protection, internal reporting mechanisms);
-Procedures to remedy non-compliance.

- Policy is publicly disclosed;
- Compliance mechanisms are publicly disclosed.

 

While these criteria make up the first stage of implementation, the FTSE4Good Committee intends to introduce further criteria for high-risk companies. These include:

On the policy level:

- board-level Commitment made public;
- tranparency of any political donations; and,
- policy applies to business partners.

On the systems level:

- sanctions process for breaches of policy;
- risk based-assessment or risk-led prioritization;
- communicate policy to business partners; and,
- appropriate systems for appointment and remuneration of business partners and intermediaries

For more information please visit: www.ftse.com/ftse4good

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IFC Adopts New Environmental and Social Standards

On February 21, 2006 the International Finance Corporation, the private lending arm of the World Bank, adopted a new set of environmental and social standards. The standards, which replace the IFC's 1998 Safeguard Policies, build upon the environmental and social requirements that the IFC currently applies to private sector projects it finances in the developing world.

The new standards come after an extensive period of public comment and consultation with stakeholders, governments, NGOs, and other members of civil society on updating the safeguards. According to the IFC, this period was triggered both by the realization that the old safeguards had proved inadequate in complex project situations, and by the IFC’s transition to a new business model, which is based on the premise that long-term profitability and strong project outcomes are better secured by companies that manage all of their risks well.

The standards cover more areas than the old safeguards and give those already in place more force and specificity. For instance the standards now require firms to consider the impact projects will have on the wider community's health, safety, and security as well as establish a grievance mechanism for affected communities. The new standards also include a comprehensive approach to labor conditions, which addresses all four core labor standards of the International Labor Organization (forced labor, child labor nondiscrimination, and freedom of association and collective bargaining).

While the old safeguards put special emphasis on assessing the social impact programs have on vulnerable groups, for instance on concerns over involuntary settlement, Indigenous Peoples, and cultural heritage, the new standards add a reference to human rights. In particular, the standards tackle the difficult issues of adequate housing and security of tenure. 

Furthermore, the standards adopt a new outcomes-based approach, which replaces a rules-based system with a principles-based one. According to the IFC, the outcomes-based approach hinges on three policies which it hopes will help clients identify and prepare for the risks intrinsic to their business: 1) developing a clear business model with concrete management systems for handling problems 2) outlining, with help from the community, clear desired outcomes and specific plans of action tailored to the specific project and 3) considering a diverse set of means and maintaining the flexibility that will enable clients to seize new opportunities. 

The IFC is also adopting a new policy structure that more clearly defines and distinguishes between the roles of the IFC and its private sector clients, thereby increasing accountability. The Sustainability Policy outlines the IFC’s responsibilities to project outcomes and communities, while The Performance Standards describe those of its clients. These include clear requirements for public disclosure by clients both at the beginning, and throughout the course of, the project.

The Disclosure Policy identifies and expands on the IFC’s duties to publicly disclose information on its activities and governance. In particular, it creates a request-driven process and internal review mechanism that will enable the public to request and receive information and challenge decisions in an easier and more timely manner. Moreover, the IFC will now regularly post more key internal documents for public scrutiny such as its budget, business plans, minutes from Board meetings, and summaries of project impacts and successes.

Finally, three additional documents, while not IFC policy, will serve as advisory material for clients and IFC staff. These are guidance notes for adhering to the new standards, directions for completing environmental and social reviews, and technical guidance for addressing environment, health, and safety issues.

The Equator Principles are also expected to be updated in accordance with the new IFC standards. These are a set of environmental and social guidelines, based on IFC’s safeguards, that are now applied by 40 leading commercial financial institutions, which collectively represent some 80 percent of global project finance.

Please visit the IFC website for full report.

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The Global Reporting Initiative (GRI) Releases New "G3 Guidelines" for Comment 
January 4, 2006

The GRI is now seeking comments on the GRI's New G3 Guidelines, which will play a critical role in influencing the ways in which companies publicly report their corporate social responsibility performance. The very detailed statement on the guidelines that GRI has now published can serve a key standard-setter for business. Comments are sought by March 31, 2006. GRI notes that, “The Guidelines consist of principles for defining report content and ensuring the quality of reported information as well as standard disclosures comprising performance indicators and other disclosure items. The Guidelines also include guidance on specific technical issues in reporting.“

The Global Reporting Initiative (GRI) is a multi-stakeholder process and independent institution whose mission is to develop and disseminate globally applicable Sustainability Reporting Guidelines.

Since its inception GRI has been committed to a process of continuous improvement driven by the insights and experiences of stakeholders familiar with the Guidelines and other GRI reporting framework components.

Now underway is a process to innovate the Guidelines based on extensive stakeholder input gained from nearly 500 people worldwide through the Structured Feedback Process. The result will be the third generation of GRI Guidelines (built on prior versions 2000 and 2002) due for release in mid-2006.

GRI has named the process “G3” not only as a reference to the third generation of Guidelines, but also as a reflection of its three key components:

Guidelines Innovations

An innovative and ambitious workplan focusing on updating and improving indicators, the application of the Guidelines, and linkages with other CSR tools and financial markets.

Digital Solutions

The development of a technology platform for reporting will be interlinked with the innovation of the Guidelines. The digital solution will play a key role in enhancing the ease of use of the GRI Guidelines and resulting sustainability reports. The digital solution will include an enhanced GRI website, and the development of XML/XBRL taxonomies. The development of digital solutions for the delivery of the G3 Guidelines will begin in mid-2005.

Education

A key component of the G3 process is the development of educational support, such as tutorials and seminars, around the context and application of principles and indicators. The development of an education programme is scheduled to begin in mid-2005 with the development of materials and course planning.

The G3 has two main goals:

  • Increase and progress the robustness of the GRI reporting framework
  • Reframe the GRI business model to become a self-sustaining organisation through technology-supported Guidelines and related services.

The three G3 components components (Guidelines innovation, digital solutions, and products and services) were designed to achieve the following broad objectives:

Better alignment of external reporting with internal management processes.

To serve as an effective agent for change in an organisation, the process of GRI reporting must be linked to other internal systems that drive decision-making and core business processes, thereby contributing to the ability of organisations to achieve better performance.

Clarity of Guidelines and Rreports

The G3 must provide greater depth and clarity on reporting expectations to enable greater consistency in reporting and make the Guidelines easier to understand. This will include more guidance on the performance indicators and the use of reporting principles. This will increase the assurability of reports, and users’ ability to analyse multiple reports in a consistent fashion.

Advancement and harmonisation.

The GRI Guidelines are part of a greater system of corporate responsibility (CR), non-CR codes, guidelines, standards, and tools – GRI will enhance its general compatibility with these through the G3 process. Given the demand for greater credibility in reporting, the G3 process will specifically consider the compatibility of the Guidelines with existing assurance standards and processes. The goal is to make the Guidelines as assurable as possible within the context of GRI’s multi-stakeholder process.

Easier use of the Guidelines.

While there are about 600 organisations using the 2002 Guidelines as the basis for their reports, there is still consistent feedback that the Guidelines are complex. The G3 will seek to make the Guidelines as easy to use as possible through changes to content and presentation, and the use of technology. In addition, the GRI is also developing supporting material and tools for the G3.

Relevance and materiality

The ultimate objective of reporting is to provide meaningful and relevant information to stakeholders. The G3 will include greater guidance on prioritizing report content, particularly through the application of reporting principles. Overall, the G3 process will conduct the periodic review of the key elements of the GRI reporting framework (principles, indicators, etc.) in light of learning since the release of the 2002 Guidelines. One of the key goals will be to enhance the relevance of GRI reports for financial markets such that they can effectively serve as the first source of information for analysts seeking to assess sustainability performance.

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The 10 Principles of The Global Compact

Recent News - Pemex Joins UN Global Compact.  Mexico's state oil company Pemex has signed the Global Compact. Pemex’s decision could have a major influence on other Mexican companies and represents a key step forward for the Global Compact, which currently claims to have 2,000 member corporations.

The Global Compact, managed by the United Nations, challenges corporations to strengthen global corporate citizenship by working together with UN agencies, labor and civil society to support its Ten Principles. The Global Compact is a direct initiative of the Secretary-General. It is a purely voluntary initiative with two objectives:

  • Mainstream the ten principles in business activities around the world
  • Catalyze actions in support of UN goals

Ten Principles

The Global Compact's ten principles in the areas of human rights, labor, the environment and anti-corruption enjoy universal consensus and are derived from:

The Global Compact asks companies to embrace, support and enact, within their sphere of influence, a set of core values in the areas of human rights, labour standards, the environment, and anti-corruption:

Human Rights

  • Principle 1: Businesses should support and respect the protection of internationally proclaimed human rights; and
  • Principle 2: make sure that they are not complicit in human rights abuses.  

Labour Standards

  • Principle 3: Businesses should uphold the freedom of association and the effective recognition of the right to collective bargaining;
  • Principle 4: the elimination of all forms of forced and compulsory labour;
  • Principle 5: the effective abolition of child labour; and
  • Principle 6: the elimination of discrimination in respect of employment and occupation.  

Environment

  • Principle 7: Businesses should support a precautionary approach to environmental challenges;
  • Principle 8: undertake initiatives to promote greater environmental responsibility; and
  • Principle 9: encourage the development and diffusion of environmentally friendly technologies   

Anti-Corruption

Principle 10: Businesses should work against all forms of corruption, including extortion and bribery. 

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