The review examines the policies and reports of the world’s 100 largest Transnational Corporations (TNCs) and 100 largest institutional investors, on matters of social and environmental management. It finds that Corporate Social Responsibility (CSR) and Responsible Investment (RI) activities are now so widespread that they could affect trade and investment flows, yet they differ greatly in their content and scope, so their impact on sustainable development is currently unclear. Lifeworth’s Director Jem Bendell, the co-editor of the report, explains that “the data shows that both corporate reporting and investor engagement on business responsibilities is now widespread around the world yet remains very variable in both form and quality.” An Associate Professor with the Asia Pacific Centre for Sustainable Enterprise at Griffith Business School, Dr Bendell believes “there is a now a need for more guidance in the public interest, involving further dialogue with and between governments. Private policies on sustainable development are becoming such a feature of international trade and investment we need to bring governments to the table and work out what standards and policies will work best for all and then how we can promote them.”

Given the growth and consolidation in environmental, social and governance (ESG) analyst firms in the past 12 months, combined with perplexingly high ratings of BP by many ESG analysts over previous years, the report is likely to add weight to calls from some quarters for CSR reports and ESG ratings to become more accurate assessments of the actual social and environmental performance of companies. As such, it will provide added impetus for efforts within the UN and civil society to raise the standard and relevance of reporting and ratings, for all stakeholders. Within the UN, the Intergovernmental Working Group of Experts on International Standards of Accounting and Reporting (ISAR) could play a stronger role in promoting standardisation. In civil society, the nascent Global Initiative for Sustainability Rankings (GISR) can complement existing frameworks from the Global Reporting Initiative. There is already growing support from within the CSR and RI professions for more transparency and clarity in communications and ratings. Mark Tulay, former head of ESG Solutions at RiskMetrics told Responsible Investor magazine ‘We believe it is time for an independent, non-commercial initiative… to chart a longer term strategy for building a world-class, normative ratings framework to guide capital, procurement and business-NGO partnerships toward companies that are true sustainability leaders.”

The UNCTAD report incorporates data prepared by EIRIS (United Kingdom), Griffith Business School (Australia) and Ernst & Young (Netherlands). In the downloadable summary of the review, UNCTAD’s Economic Affairs Officer, Dr Miller highlights the following findings:
(a) Private policy on a large enough scale can have an impact similar to or greater than public policy. As a result, CSR has emerged as an important area of soft law self-regulation (or “soft-regulation”). CSR can present policymakers with new options and tools for addressing key development challenges.
(b) Most large TNCs now recognize the importance of CSR yet the standard of communication varies widely. There is a role for policymakers to enhance the quality of communications. Various policy options exist such as supporting the harmonization of CSR reporting, and mandating such standardized reporting through stock exchange listing requirements.
(c) Responsible investment practices (efforts by investors to incorporate ESG issues into investment decisions and to engage with investee companies to encourage ESG practices) have become common features of the world’s 100 largest pension funds. Regulators can work to strengthen the mechanisms through which institutional shareholders are able to influence the ESG practices of the companies in which they invest, while also encouraging investors to formally
articulate their stance on ESG issues in public reports.
(d) At least basic climate change-related information is now reported by most large TNCs. However significant inconsistencies and inadequacies among company reports undermine the comparability and usefulness of this information. Unless reporting is produced in a consistent and comparable manner, it is difficult for policymakers, investors and other stakeholders to use it to make informed decisions. Policymakers could promote an internationally harmonized approach to the way companies explain, calculate and define climate change-related emissions.
(e) A number of voluntary initiatives are taking a leading role in designing and facilitating CSR and responsible investment instruments, encouraging improved corporate communication on ESG issues and creating important benchmarks, based on universally agreed principles. Policymakers can become involved in these initiatives with the aims of promoting sustainable
development goals and identifying useful tools to complement government rules.

The report and its summary can be downloaded at www.unctad.org/csr

Lifeworth Consulting participated in this work as part of its Enterprise Trends programme. Lifeworth’s Jem Bendell can be contacted for interview about the report and the challenges it identifies, via +44(0)2071936102

“I have been supporting a Pakistani investment fund in becoming aware of and familiar with the United Nations Principles on Responsible Investment (UNPRI)[1]. The aim is to help this fund in becoming a signatory and actively support the network and agenda in the Pakistani context.

At the beginning of the process, a dialogue was initiated with:

a) The Chairman/Managing Director and;
b) The Head of Corporate Governance and Corporate Affairs

(Both these players were kept in the loop from the beginning to insure upper level championing as well as implementation support during the process of signing up if the initiative was to go ahead).

The initial meetings were carried out with both to gauge the level of interest/ awareness in the organization about their principles regarding responsible investment and the benefits of signing up to the UNPRI. The process was then continued in an informative fashion with briefs prepared covering:

* Influence on returns
* Influence on brand
* Costs of signing
o staff,
o financial and;
o implications for fiduciary duty
* Internal Procedure for signing up

The information was then collated and presented for consideration to the Board of Directors on the 20nd of January 2010. The issue was passed unanimously and the Board was pleased to allow the company to become a signatory to the UNPRI. The matter was resolved further in the decision taken by the Board to authorize the Managing Director to be able to approve all necessary steps, measures and actions necessary to comply with the formalities needed to join the signatories of the UNPRI.

I am pleased to mention at this point that the fund that I have been talking about is the National Investment Trust limited (NITL), Pakistan’s first open ended mutual fund established in 1962 with the objective of stabilizing and developing the equity markets in the country. Over the course of its existence it has evolved into the country’s largest Asset management company, operating a number if funds in the category of Equity, Bond and Income.

The fact that the NITL has taken the step to become the first signatory in the region to this voluntary initiative on responsible investment has various positives.

Positive implications:

For the fund:

Influence on returns: Implementing the Principles will lead to a more complete understanding of a range of material issues, and this should ultimately result in increased returns and lower risk. There is increasing evidence that ESG issues can be material to performance of portfolios, particularly over the long term[2] .

Performance: through signing on the UNPRI the fund will have access to the latest research and tools for assessment of ESG issues and frameworks.

Influence on brand: The NIT would be the first asset owner to sign up not only in Pakistan but all of South Asia, and hence has the opportunity to emerge as a leading voice on environmentally and socially responsible investment as well as serve as an example and a conduit for UNPRI and other potential signatories in the region.

Networking: Building networks at the PRI in Person Annual Event bringing together signatories.

For the investment environment of the country:

Increase the visibility of the principles and environmental, Social and governance issues in the country’s investment landscape:

* With investments in Equity of 430 companies and Directorships in 140 companies, the NITL can have influence in improving the ESG structure if a significant population of the country’s companies.
* Considered a leader in the Mutual fund industry of Pakistan the NITL can influence other investment management companies in the country to consider supporting responsible investment in the country

Increase the visibility of the Pakistani investment industry in the globalised context and the international responsible investment dialogue through having an opportunity to be part of a global forum on the issue.

Platform for advancing north-south dialogue: At the PRI in Person Annual Event signatories get the oppurtunity to unlfuence the dialogue on responsible investment through brainstorming on implementation strategies, network and partners.
For the Initiative/ partnership

Local platform for engagement: Through having this large mutual fund as a signatory the UNPRI has a platform in Pakistan for increasing its visibility as the NITL can

* have influence in increasing awareness of the initiative in its investees and directorships
* can use its influence with other investment management companies in supporting the UNPRI.

Next steps:

Following the approval of the board, a letter to intent signed by the Chairman/ MD has been sent to the Executive director of the UNPRI secretariat. The next steps under way at the NIT include internal research on the following themes (staff time and my consultation time has been allocated to formulate a report covering the following by 5th Feb 2010):

* Gauging level of gap in current practice towards implementing the 6 principles in NIT operations
* Understand the types of activities that are suggested in the Principles,
* Investigate how other investors have used them

This information will then be used to begin the implementation process of the principles in the NIT from the date of approval of PRI membership.

So summing up…

Pakistan is now ready to have its first ever organization to step up in the international arena and voluntarily commit to integrating the consideration of environmental, social and governance (ESG) issues into its investment decision-making and ownership practices.

With more funds and management companies signing up, the country’s the investment environment could not only be able to project a responsible image globally but begin to shape what ESG means to themselves if enough interest is generated to be able to create country network. Ones present at the moment in Brazil, South Korea and South Africa are shaping the agenda by (in addition to promoting the principles in their regions etc) by committing to capture evolving best practice on how to factor ESG issues into investment processes and to implement the Principles[3] in their own contexts.

[1] www.unpri.org

[2] http://www.unpri.org/faqs/

[3] http://www.unpri.org/files/SA_network_final.pdf

Hanniah can be contacted via our contact form.

http://www.lifeworth.com/consult/connect/

Click here to view the embedded video.

Read more about the UNPRI or see more videos from their participants at http://www.youtube.com/user/UNPRItube

The Finance Lab is the result of a project initiated in 2007 by Jen Morgan at WWF-UK and Lifeworth’s director Jem Bendell. Senior Lifeworth Associate Cheryl Hicks is convening the online dialogue, and Lifeworth Associate Matthew Slater is cohosting the discussions in the Lab on Money Systems.