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Corporate Social Responsibility
News
1.13.2005 ET
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New Report Shows Institutional Investors Fail Pension Policy Holders by Not Addressing Social and Environmental Issues in Investment Decisions
(CSRwire) LONDON - 'Mainstreaming Responsible Investment' - A new
report released by AccountAbility and the World Economic Forum offers the
most comprehensive and incisive insight to date into the failure of the
financial community to meet the needs of the real owners of capital
through its unwillingness and inability to consider material social and
environmental factors in investment decisions.
The report paints a picture of rising pressure for change in the financial
community driven largely by the changing composition of corporate share
ownership due to population aging and the related growth in private
retirement savings. As Simon Zadek, Chief Executive of AccountAbility
, observes, "The real owners of capital in today's markets are you and
me, the intended beneficiaries of the pension funds, mutual funds and
insurance companies. The responsibility of institutional investors must be
to meet our intrinsic interests. These go far beyond short-term financial
returns, both because financial returns are effected over the long term by
the investments' social and environmental impacts, and because we depend on
the long-term vitality and health of our economies, communities and the
natural environment. Our interests must be that trustees and fund managers
acting on our behalf take account of material social and environmental
aspects of corporate performance".
The report entitled is the outcome of a series of three expert Roundtables
during 2003 and 2004. The Report's findings have emerged from two years of
in-depth discussions with practitioners. Its findings and recommendations
draw directly from the perspectives of pension fund trustees and
executives, portfolio managers of mainstream asset management firms as
well as of buy-side and sell-side analysts.
Al Gore, Chairman of Generation Investment Management , commented,
"incorporating social and environmental factors into investment decisions
may seem exotic to some fund managers and pension fund trustees today,
although certainly not to us at Generation. But there is no doubt it will
be core to tomorrow's successful investment strategies and practices. The
AccountAbility/WEF report goes a long way in identifying the impediments
to this process and how best to overcome them".
The report's proposals are aimed at both the investment community and
governments. Patricia Hewitt, the UK Government's Secretary of State
for Trade and Industry , writes in the report's Preface, "I very much
welcome the work which AccountAbility and the World Economic Forum have
done to bring together these different players...I believe that the
answers lie not in rethinking business and investment from scratch, but in
the kind of improvements in knowledge and practice which are discussed in
this report".
The report identifies key impediments to broader consideration of social
and environmental factors by the mainstream investment community, and
explores changes in policies and practices that could 'tip' systemic
change in the investment community in this direction. "We found that the
issue is decidedly not the personal values of these market participants
but rather the framework of industry customs, structure, and regulation in
which they operate. It is the combination of available information,
participant competencies and, most of all, institutionalized incentives
that drive behavior" said Richard Samans, Managing Director of the
World Economic Forum's Global Institute for Partnership and Governance
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Mainstreaming Responsible Investment includes a series of recommendations
for reform of industry practices and public policy. These draw upon
chapters contributed by three distinguished expert practitioners from
different segments of the investment value chain: Mehdi Mahmud
,Executive Vice-President of Jennison Associates (asset management);
Francis Condon ,until recently Head of European Steel Research, ABN
AMRO Equities (investment analysis); and Stephen Davis ,President
of Davis Global Advisers (pension fund trustee adviser), respectively.
The report outlines an agenda of reforms to realign incentives
within the institutional investment community and strengthen its ability
to produce and understand non-financial information that may be relevant
to financial performance. Among the recommendations are:
Create an international set of good governance principles for pension
funds akin to a corporate governance code
Increase the duration of asset manager mandates
Increase the disclosure of asset manager compensation structures
Develop new business models for research on non-financial issues by
analysts
Re-evaluate the relationship and relative organizational standing of
portfolio managers and buy-side analysts
Pay, train, and empower pension fund trustees more like corporate
directors
Create a specific professional competency for non-financial analysis
Increase the emphasis on non-financial aspects of corporate
performance in graduate business schools
Widen the dialogue between analysts and corporate investor relations
officers on non-financial information
To download a copy of the report, click here.
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