In 2007, the National Roundtable on the Environment and the Economy (sponsored by the federal government) recommended that Canadian legislation be amended to include a similar requirement. While the government has yet to act on this recommendation, the Ontario Securities Commission recently issued a direction to companies to begin reporting material environmental data as part of their securities filings. This is an unprecedented move by an influential market regulator. It will be interesting to see what impact it will have and how the drive toward transparency will develop in Canada.
A final international project worth mentioning is the Enhanced Analytics Initiative (EAI). The EAI was established in October 2004 by a group of institutional investors (including asset managers and pension funds) who believe that members and clients are best served when investors take a more rounded assessment of corporate performance and that one of the key obstacles is the quality and focus of current sell-side research. To support this goal, they have agreed to channel 5% of brokerage fees to recognized leaders in ESG research.
Collaboration
The most prominent resource for global collaboration on these and other initiatives and issues is the PRI Clearinghouse. The Clearinghouse is an online discussion forum that allows signatories to post and leverage the impact of their RI activities. These can include direct and collaborative corporate engagement, shareholder resolutions, engagement with regulators and other governing bodies. This forum is especially relevant to mid-size funds and investment managers working together to supplement internal resources.
A good example of effective collaboration was initiated by the investment manager Baillie Gifford and brought together key signatories with an already existing coalition, the Japan Focus Group. The participants have written to the Tokyo Stock Exchange urging listed companies to disclose the actual percentage of votes cast for and against shareholder resolutions, rather than simply whether they passed or failed. The investors participating in this initiative manage more than $10 trillion yen of Japanese equities.
The PRI is directed not only at the broader financial and industrial universe, but also internally. The signatories have pledged to work together, share information and report on their own progress in implementing the principles. To assist them, the PRI provides an online questionnaire for self-assessment and benchmarking against peers. Every signatory has a one-year grace period before it is required to report.
The latest figures released by the PRI are very encouraging. Thirty-two percent of signatories are planning to revisit the ESG capacities of their existing service providers—a 68% increase from last year. Three out of four signatories report that they have engaged with policy-makers and regulatory bodies on ESG issues—an increase of almost 30%. The percentage of asset owners reporting a medium to high level of involvement in collaborative activities increased to 47% from 38%. And three out of four investment manager and asset owner signatories are systematically reporting on their RI and ESG-related activities.
The PRI has become the main global initiative encouraging the incorporation of ESG factors into the investment process. There has been steady growth in terms of the absolute number of signatories and total assets under management—but also, more importantly, in the number of institutions pursuing RI and their understanding of the link between ESG factors and long-term financial performance.
Jordan Berger is a principal with Mercer’s investment consulting business and head of responsible investment for Canada. jordan.berger@mercer.com
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© Copyright 2008 Rogers Publishing Ltd. This article first appeared in the July 2008 edition of BENEFITS CANADA magazine.
