‘Responsible investment as a motor of change!’

Each investor has the power to decide the manner in which his or her money is used by asserting his or her convictions and bringing pressure to bear on businesses so that they do likewise. As ever increasing numbers of players embrace the concept of responsible investment (RI), more and more businesses are adopting practices more consistent with the social responsibility and environmental values of the 21st century. Although much remains to be done, RI has scored a number of major successes. It is now a matter of ensuring that RI-related impact is perceived as a process which focuses on the medium and longer terms.

Following is an overview of some of RI’s import successes to date.

ENVIRONMENTAL SUCCESSES

The challenges associated with climate change and air pollution are attracting ever increasing investor attention. In part owing to shareholder pressure, climate change is the challenge having spawned the greatest degree of corporate transparency (GIR, Corporate Issues 2013, p. 14). In recent years in the USA, several tens of shareholder proposals in this regard have been withdrawn, often after the companies targeted have committed to adopting enhanced practices. In 2011, the consulting firm of David D Gardiner & Associates Inc. conducted a follow-up survey with companies which demonstrated that action advocated in over 75% of all proposals ultimately withdrawn was either implemented in whole or in part and resulted in tangible environmental improvements. (Source: USSIF, The Impact of Sustainable and Responsible Investment, September 2013, p. 17).

– 2002 –

Pressure brought by bear by shareholders and environmental groups helped persuade Home Depot, the largest home improvement speciality retailer in Canada and the world, to gradually eliminate the sale of goods the components of which were sourced from forests under threat. Seven years later, Home Depot sold more Forest Stewardship Council (FSC) certified wood that any other business in North America. (Source: USSIF, The Impact of Sustainable and Responsible Investment, September 2013, p. 18).

– 2005 –

After lengthy dialogue with a number of responsible investors, JPMorgan Chase (which is the large bank in the United States and, according to Forbes magazine, the world’s third largest company) at long last adopted an environment policy that addresses issues such as global warming, illegal forestry operations and the rights of indigenous peoples. The company also hired its first ever Manager of Environmental Affairs (Source: USSIF, The Impact of Sustainable and Responsible Investment, September 2013, p. 17).

– 2010 –

After years of dialogue with responsible investors, TJX Companies, a clothing and decorating accessories retailer that claims to be the largest international apparel and home fashions off-price department store chain in the United States, agreed to publish a sustainable development report detailing climate risks and to set up a special team to improve corporate performance in terms of sustainable development. (Source: USSIF, The Impact of Sustainable and Responsible Investment, September 2013, p. 17).

Early in 2010, United-Kingdom based ShareAction co-ordinated two shareholder resolutions, asking BP and Shell to publish details of the environmental, social and financial risks associated with their tar sands project. Supported by some of the largest pension funds in the world, these resolutions saw 1 in 10 shareholders refusing to side with management at the Shell annual general meeting (AGM), while the BP AGM saw 1 in 7 reject the company’s recommendation. Amidst massive media coverage, both Shell and BP rushed to meet with investors and made important disclosures as a result. (Source: ShareAction Impact of RI).

– 2011 –

In December 2011, the Investor Environmental Health Network (IEHN), a coalition of investors and environmental organizations, and the Interfaith Center on Corporate Responsibility (ICCR) published an investor guide outlining disclosure expectations and risks from hydraulic fracturing. The investor guide has been supported by 55 major investors on three continents (North America, Europe and Australia) responsible for more than $1.3 trillion in assets under management. The guide cites numerous examples from seventeen companies already implementing various practices and encourages “a race to the top.” The guide has been a valuable resource in investor discussions with several companies, including Apache and ConocoPhillips. In early 2011, Southwestern Energy and Anadarko agreed to improve the quality of information available to the public about fracking, including through better website disclosure, after they received resolutions on the subject. Southwestern Energy also issued a public statement supporting a hydraulic fracturing disclosure bill. (Source: USSIF, The Impact of Sustainable and Responsible Investment, September 2013, p. 18 – 19).

– 2012 –

Following remarkably high support from investors (29%), McDonald’s launched a pilot program in March 2012 to replace styrofoam cups with recyclable paper cups at 2000 of the company’s US locations.

SOCIAL SUCCESSES

– 1990s –

Nike and Gap, two of the largest clothing retailers in the USA, sustained considerable criticism for the wretched working conditions in supplier factories. As a result of investor pressure, both companies agreed to step up supervision of and report on supplier practices:

“[Social investors]… worked with Gap to improve conditions in the company’s more than 300 factories. Resulting state-of-the-art vendor standards reports, published in 2004 and 2005, documented the company’s progress and included concrete data on compliance and remediation efforts. Gap’s stakeholder engagement strategy, which included investors, transformed the way Gap approached ethical trading problems. Today, Gap has a social and environmental responsibility department with approximately seventy full-time staff dedicated to these issues. This department partners with hundreds of factory owners and managers, NGOs, and industry associations worldwide. Gap is also a founding member of the Better Work program, sponsored by the International Labor Organization (ILO) and the International Finance Corporation. Better Work seeks to help governments, workers, and companies achieve compliance with national labor laws and the ILO’s core labor standards. As a result of investor engagement, the paradigm has shifted and many companies are taking concrete steps to develop vendor codes of conduct, monitor supplier factories, and publish reports disclosing key data about their supply chains.“ Source: USSIF, The Impact of Sustainable and Responsible Investment, September 2013, p.19).

POLITICAL SUCCESSES

Although not necessarily representative of the ultimate impact of responsible investment, political successes are nonetheless essential for achieving social and environmental results. Accordingly, government policies serve as a powerful tools for forcing companies to adopt practices more respectful of the environment and the communities in which they operate.

– 2012 –

In response to concerns raised by responsible investors and various human rights groups, the US Congress classified minerals from rebel controlled areas of the Democratic Republic of Congo, a nation in the throes of civil war and armed conflict since 1997, as “conflict“ minerals. These minerals are used in the production of tin, tantalum, tungsten and gold which are found in modern-day consumer products such as mobile telephones and tablet computers.

Since 2012, under the Dodd Frank Act, the US Securities and Exchange Commission (SEC) requires companies to divulge information respecting mineral use. Companies must, for example, specify which minerals are required for the manufacture of their products and which processes are implemented to prevent the use of ‘conflict minerals’ in the production chain. The purchase of these minerals is not illegal, but companies are required to submit to independent studies and publish findings so that consumers and investors might knowingly alter their choices.