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FINANCE: U.N. Pact Rewards Good Corporate Citizens

Emad Mekay

WASHINGTON, May 11 2006 (IPS) - The United Nations is signing up international businesses and investors to a set of voluntary codes that seek to raise the bar for corporate social responsibility and environmental awareness.

Dozens of major institutional investors, together holding more than four trillion dollars in financial assets, have pledged support for the new the Principles for Responsible Investment (PRI), six environmental, social and corporate governance guidelines that companies would be expected to adhere to.

The latest batch of signatories came at a low-profile gathering in Paris earlier this month, when 18 companies joined 32 others that had already signed up since U.N. Secretary-General Kofi Annan first launched the initiative in April.

The signatories include funds run on behalf of teachers, pensioners, union members and government workers.

They include the New York City Employees Retirement System, United Nations Joint Staff Pension Fund, France’s BNP Paribas Asset Management, the Netherlands’s ABN AMRO Asset Management, and the Government Pension Fund from Thailand.

The U.N. Environment Programme Finance Initiative and the U.N. Global Compact, which seeks to foster cooperation between the U.N. and the private sector, are running the new initiative.

“The principles provide a blueprint for what is fast becoming the only way to do business in the globalising markets of the 21st century,” said Monique Barbut, director of the U.N. Environment Programme’s Division of Technology, Industry and Economics.

As the PRI’s launch, Annan said that the principles grew out of concern that “investment decision-making does not sufficiently reflect environmental, social and corporate governance considerations – or put another way, the tenets of sustainable development.”

The U.N., however, was clear that this was not a divestment campaign, meaning the reduction of investments in firms, industries or countries for reasons of political or social policy, as occurred in the 1980s when numerous firms pulled out of South Africa to protest the apartheid regime.

“The main point is that this is not a divestment initiative,” U.N. spokesperson Matthias Stausberg told IPS. ” It’s (not) asking asset owners such as institutional investors or assets managers not to invest in companies, but rather to engage with companies and lead them on a path of continuous improvement.”

The U.N. believes that large investors are so highly diversified and have such large stakes in companies across the world that divestment or avoidance would be impractical.

For example, pension funds alone – public and private – account for up to 35 percent of total global investment, and can make a huge impact. So far the U.N. is happy with the endorsement the PRI has received from investors, who bring assets to the initiative worth some four trillion dollars.

“That’s a staggering amount of money,” Stausberg said. “We’ve established a very, very good momentum and by all indications more institutions will join and subscribe to these principles for responsible investment, and hopefully this can become a powerful initiative.”

Under the plan, signatories expect to benefit through creating a network of the world’s largest institutional investors, who will share examples of good practices and guidance from the initiative’s secretariat.

Those companies can also expect to save money as collaboration will lead to reduction in research and implementation costs.

But many questions remain. For one, the PRI is voluntary, and similar non-binding agreements like the Equator Principles, launched by the World Bank Group in 2003, have not significantly altered how multinationals conduct business across the globe, often to the detriment of the environment and social standards.

The PRI admittedly lacks details and it has not yet offered tools, instruments or mechanisms of implementing the principles on the ground. Most of the investors who signed on so far come from a small pool of socially responsible investment circles and the plan has not won many new converts.

Socially responsible investment funds remain in the minority worldwide. In the United States, the world’s largest economy with the most vibrant financial markets, they represent just 3.9 percent of the more than four trillion dollars invested in stocks, bonds and mutual funds.

Traditionally, such investors have bought stock in companies that adhere to social, moral, religious or environmental standards. They adopt screening processes and gauge investments against principles such as respect for the environment and human rights, and shun animal testing, nuclear power and services and products such as weapons, pornography, gambling facilities, alcohol and tobacco.

But according to the U.S.-based Social Investment Forum, a non-profit group that promotes responsible investment, there’s room for hope. Social, environmental and corporate governance considerations are on the rise in boardrooms, it says.

Key considerations in social and environmental shareholder resolutions include global warming, toxics and pollution reduction, reining in executive pay and disclosure of political contributions.

The Washington-based group said in a report earlier this year that socially responsible investment assets rose more than 258 percent from 639 billion dollars in 1995 to 2.29 trillion dollars in 2005, outpacing the broader universe of assets under professional management by 10 percent.

Total investments increased some 249 percent from seven trillion dollars to 24.4 trillion dollars over the same period.