The investment community can play a significant role in alleviating poverty and promoting development
From 2008 to 2010, as part of the Oxfam Better Returns in a Better World project, we engaged with over 80 investors across Europe and the United States on the contribution that institutional investors could make to poverty alleviation and development in developing countries.
We found that many investors were aware of the social impacts of their activities, but that poverty alleviation and development were not, at that time, seen as integral parts of the responsible investment debate.
We identified a series of reasons for this. Some were structural, notably the lack of demand from asset owners, investor short-termism, and the general lack of transparency of the investment industry (which reduced investor accountability for the impacts of their investments).
Others were technical, with the difficulties in accounting for poverty reduction and development issues in investment processes, and the general absence of clear normative frameworks against which company performance could be assessed being of particular importance.
Normative frameworks were identified as important because investors are more likely to take specific social issues into account in their investment decisions and in their engagement when there is a clear consensus around what the expectations of companies are. The reason is that the risks to companies are greatest in situations where they violate or risk violating existing legislation or agreed societal norms (ie where their behaviour could be characterised as “unacceptable”).
Since the conclusion of the Better Returns in a Better World Project we have seen significant progress in a number of areas.
First, a number of research providers have developed risk exposure and assessment tools that can be used by investors to identify high risk countries from a human rights or conflict perspective and to assess corporate performance on issues such as labour standards and bribery and corruption.
Second, from 2014, the Principles for Responsible Investment (PRI) will require its asset owner and investment manager signatories to report publicly on how they have implemented their commitments to responsible investment.
To start with, most of the information to be reported will relate to policies, resources and implementation processes, rather than performance outcomes. Perhaps this is inevitable, reflecting the reality that many investment managers and asset owners do not currently report (or report very little).
It also suggests that the proposed reporting requirements are best seen as an intermediate stage and that the PRI will need to pay much greater attention to performance outcomes (eg companies’ impacts on human rights or contribution to local economic development) in future years.
Third, there is growing evidence that investors are starting to accept engagement as an essential feature of their responsible ownership duties. For example, in 2011, 310 signatories participated in one or more collaborative engagement initiatives convened by the PRI.
Even here, however, social issues continued to receive much less attention than environmental or governance issues. Of these engagements, 35% related to corporate governance, 26% to environmental issues, 24% to environmental, social and governance (ESG) issues, and just 15% to (exclusively) social issues.
While there has been significant progress on certain issues, notably the investor statement calling for a strong, legally binding and comprehensive arms trade treaty, investor support for the CEO water mandate, and the PRI’s principles for farmland investments, the reality is that most of these initiatives have been led by a handful of committed investors. The CEO water mandate, for example, is backed by just 16 PRI signatories.
In conclusion, while there has been significant progress over the past three years, poverty and development issues have yet to receive significant attention from investors. It is striking, for example, that while there has been extensive discussion of the issue of short-termism in investment decision-making, little attention has been paid to the social or development consequences of short-termism.
To deliver real change requires that investors put the goals of poverty alleviation and development at the heart of their efforts and press for these issues to be a central part of wider discussions on the structure and operation of the investment system.
This is based on Responsible Investment, Poverty Reduction and Development: Better Returns by Rory Sullivan and Helena Vines Fiestas, recently published in Issue 48 of the Journal of Corporate Citizenship.
Dr Rory Sullivan is a senior research fellow at the University of Leeds, a strategic adviser for Ethix SRI Advisers and a member of the Ethical Corporation advisory board. He was the investor lead on the Oxfam Better Returns in a Better World project and he is the editor, with Daphne Bilouri, of Issue 48 of the Journal of Corporate Citizenship, focusing on responsible investment in emerging markets.
Helena Viñes Fiestas is co-head of SRI research and head of sustainable thematic research at BNP Paribas AM. She previously led Oxfam’s advocacy work on responsible investment and was the Oxfam lead on the Better Returns in a Better World project. She also led Oxfam’s private sector policy on access to medicines and the pharmaceutical industry.Community investment development goals Helena Viñes Fiestas poverty responsible investment Rory Sullivan Sustainable Investment