The pressure on companies to disclose social, environmental and
governance risks has increased dramatically with a commitment by
institutional investors controlling more than $2trillion (£1.1tn) in
assets to apply responsible investment principles to their portfolios.
Pension funds have agreed common investment principles on aspects of
responsible investment practice before, but never on the scale and
scope of the six Principles for Responsible Investment launched at the
New York Stock Exchange at the end of last month.
The principles (see box below) commit the funds to incorporate SRI
issues into daily investment practice, both in the analysis of
companies and in the exercise of ownership rights. The investors will
also press companies to disclose information on their ethical
performance and will actively encourage other investors to follow suit.
This action is consistent with their fiduciary responsibilities, the
funds say, because ‘environmental, social and corporate governance
issues can affect the performance of investment portfolios’.
The principles apply to the ‘investment functions’ of the entire
business, including all asset classes and product lines, not just those
run along SRI lines.
More than 20 pension funds, foundations and government funds spent a
year developing the principles under the auspices of the UN Environment
Programme Finance Initiative. Kofi Annan, UN secretary-general, said
that with ‘rare’ exceptions, companies’ efforts to embrace corporate
responsibility ‘have not been recognized or rewarded by the financial
community … the predominant factor has been the absence of a set of
common guidelines that individual and institutional investors can use
to assess risks and opportunities fully’. The principles offer a ‘menu
of possible actions’ for investors, he added.
On disclosure, for example, they say investors should ‘ask for
standardized reporting (using tools such as the Global Reporting
Initiative)’ and for SRI issues ‘to be integrated with annual financial
reports’.
Calpers ($207billion) and ABP Investments of the Netherlands ($231bn),
which are respectively the two largest pension funds in the US and
Europe, are among the signatories, along with the BT Pension Scheme
($52bn).
See editorial
