The investment community demands disclosure from public companies, but fails to deliver such information about itself

Investors are significant players in the corporate responsibility reporting debate. Individually and through collaborative initiatives such as the Carbon Disclosure Project, investors have pressed companies to provide information on their policies, practices and performance across a range of social and environmental issues.

Yet, despite this emphasis on reporting, it is striking that the investment industry has been relatively slow to embrace transparency itself. For example, recent research from UNCTAD – the UN Conference on Trade and Development – indicates that just 13 of the world’s 100 largest pension funds have produced an explicit annual report on their responsible investment practices.

Even among the 25 of these pension funds that are signatories to the UN Principles of Responsible Investment (PRI), just ten produce an annual report. This contrasts starkly with the fact that 87 of the world’s 100 largest transnational corporations produce an annual corporate responsibility report.

These weaknesses in disclosure have four important implications for the responsible investment industry and, by extension, for initiatives such as the PRI.

Credibility gap

First, the credibility of investor engagement with companies will be undermined. Companies will inevitably push back if they are being pressed to increase the volume of information they produce by organisations that do not have similar levels of transparency.

Second, reporting has a valuable capacity-building role. Companies complain that investors are pressing for more and more reporting, with limited consideration of the practicality or relevance of these disclosures for investors, companies or their stakeholders.

It is not unreasonable to assume that investors would be much more sensible and thoughtful in their demands of companies if they had a better understanding of how corporate responsibility information is generated and how it can be used to inform corporate decisions.

Third, there is a credibility issue for the investment industry itself. The PRI are presented as representing something of a sea change in the manner in which investors address the social and environmental impacts of their investment practices.

The question – which has yet to be answered – is whether this has translated into substantive changes in the manner in which money is invested or the outcomes (social, environmental, financial) that result from these investments.

Fourth, one of the most commonly cited obstacles to the mainstreaming of responsible investment is the lack of demand from pension funds and other asset owners. This demand is compounded by the lack of transparency.

It is simply not possible for beneficiaries to hold pension funds to account for the manner in which they deliver on their responsible investment commitments if their disclosure practices are so limited.

Reporting framework

Clearly, there is work required to develop a standard reporting framework for investors but the major elements are clear.

Investors should, as a minimum, be prepared to:

  • publish their responsible investment policy.
  • define the outcomes (financial, social, environmental) they expect to achieve from the implementation of the policy.
  • describe the strategies (engagement, voting, investment research, screening, collaboration) they intend using to implement their policy.
  • explain how environmental, social and governance issues are taken into account in their investment processes, and explain how this research has influenced their investment decisions.
  • describe their engagement activities, and provide information on their engagement objectives, the number of companies engaged with, the forms of engagement, the outcomes sought and the changes achieved.
  • describe how they vote their shareholdings, including information on situations where they abstained or voted against management.
  • describe the collaborative initiatives participated in and the outcomes achieved from these initiatives.

With an increasing number of institutional investors having made commitments to responsible investment and/or signed up to the PRI, it is likely that we will see much greater attention focused on whether and how these commitments affect investment decisions in practice. Transparency is no substitute for action but it increasingly looks like the necessary next step if we are to see real progress in this area.

Dr Rory Sullivan is head of responsible investment at Osmosis Investment Management and a member of the Ethical Corporation advisory board.

Useful link:
UNCTAD (2010), Investment and Enterprise Responsibility Review: Analysis of Investor and Enterprise Policies on Corporate Social Responsibility.
http://www.unctad.org/en/docs/diaeed20101_en.pdf



Related Reads

comments powered by Disqus