Thursday, March 31, 2011

Corporate sponsorship - a slippery slope?

Imagine my surprise when I looked at the information for the Canadian Responsible Investment Conference 2011 and saw that our hosting sponsors, in addition to sustaining members Acuity, Ethical and Meritas, included the Canadian Association of Petroleum Producers (CAPP).

It turns out that the SIO has a brand new Corporate Sponsorship Policy in place. It states ‘On the question of sponsorship, we will welcome corporate sponsors to our conferences, meetings and events, but there are limits to corporate participation.’ The policy attempts to address the difficult balance between accepting corporate sponsorship and jeopardizing the independence of the SIO.

“We thought long and hard about this decision, both at the conference committee and at the executive committee of the SIO. There were people who did express reservations. At the end of the day, we felt it is important to invite corporations to become sponsors in order to provide them with an opportunity to engage with the SRI industry. This does establish them as more equal partners in the conference, but we feel that this is the essence of true engagement – a conversation among equals.

“The corporate sponsorship policy – which has been reviewed by both the conference committee and the executive committee – sets limits on the involvement of companies in our conference. We recognize that there should be boundaries between corporations and the financial sector to avoid conflicts of interest. That’s why we don’t permit companies to become associate or sustaining members of the organization. But we believe that opening the conference to companies is a step toward constructive engagement with the corporate sector.” explains Eugene Ellmen, Executive Director, SIO.

Laudable as that goal is, I have significant reservations about allowing CAPP to be a hosting sponsor. Firstly, I believe that it gives CAPP considerable credibility to be a hosting sponsor of the Responsible Investment Conference, along with 3 entities that have an admirable and enduring relationship with the SRI community. It raises questions about the SIO’s impartiality, whether justified or not.

Secondly, CAPP is a lobby group, and one whose primary purpose of late is to showcase the tar sands as environmentally friendly and socially responsible. Many groups, including the Sierra Club and Greenpeace, consider this greenwashing. And if you have seen the ads, you may agree. Here’s CAPP’s response to the recent Nature of Things episode on the tar sands. Allowing them to be front and centre on our conference material helps their cause, and diminishes the SIO’s brand.

While I completely agree that open dialogue and representation from all sides of an issue make for a better conference, the honour of being a hosting sponsor should be reserved for entities that have a demonstrated commitment to SRI. And that’s not CAPP.

Let me know what you think.

Wednesday, March 30, 2011

Ontario budget announces mandatory disclosure of pension ESG policies

By Eugene Ellmen

The Ontario government will require provincially-regulated pension plans to file their statements of pension policies with the pension regulator and to disclose whether those policies address environmental, social or governance (ESG) factors.

The announcement was contained in the Ontario Budget released on March 29.

In an extensive section on pension reform, the Ontario budget notes recommendations from the Expert Commission on Pensions, which reported in 2008. The Commission recommended a number of wide-ranging reforms to Ontario’s pension system, including mandatory ESG disclosure to bring Ontario pensions in line with requirements in the United Kingdom and a number of other European jurisdictions.

In the budget, the government pledges to “require plans to file Statements of Investment Policies and Procedures (SIPPs) with the regulator and disclose whether or not their SIPPs address environmental, social or governance factors.”

The announcement is welcome news to the SRI industry. In 2007, the Social Investment Organization (SIO) appeared at an Expert Commission hearing, and filed a brief calling for this measure, along with disclosure of pension funds’ proxy voting policies and records. The SIO’s brief is available here. The Expert Commission did not recommend the proxy voting aspects of SIO’s recommendations.

The SRI industry around the world supports pension ESG disclosure. We view it as a fundamental issue of transparency to pension plan members, and an incentive to Boards and staff to examine whether ESG policies should be included in their SIPPs. Similar regulations in the UK and European jurisdictions have been effective at raising the level of awareness about ESG policies in their pension sectors.

SIO welcomes the Ontario announcement as a way to modernize Ontario pension funds with regard to ESG disclosure, and to bring needed balance to the discussion of environmental, social and governance issues in pension management. As the largest pension jurisdiction in Canada, the Ontario announcement is expected to encourage other provinces and the federal government to adopt similar provisions.

However, it is not immediately clear how much transparency will result from this initiative. For example, it is not clear whether pension plan members can obtain their SIPPs and statement of ESG disclosure from the regulators. SIO recommended that the SIPPs, ESG disclosure statements and proxy voting records be made available on pension websites where they have them.

The SIO will continue to monitor the issue, and press for transparency for plan members.

Eugene Ellmen is executive director of the Social Investment Organization

Monday, March 28, 2011

Budget falls short of “green” expectations, coalition says

The Green Budget Coalition (GBC), a group of 21 of Canada’s leading environmental and conservation groups, has released its response to last week’s federal budget.

The GBC had called for a national green homes retrofit program that would have cost $1.25 billion over five years. That amount would retrofit 15% of Canadian homes by 2015, including low income housing.

The coalition also called for the creation of green bonds to provide access to capital for efficiency upgrades. The goal was to create a $2.5 billion fund over a five year period.

Budget 2011 did include $400 million in 2011-12 for the existing ecoEnergy Retrofit homes program.

The GBC also asked for $10 million over two years to develop “an ambitious and coordinated plan to protect Canada’s ecosystems, wildlife and wilderness heritage.”

Ottawa pledged to spend $5.5 million over five years to establish a new national park in Labrador.

The coalition asked Ottawa to honour its G20 commitment and save $761 million a year by removing four tax preferences for the oil industry: Canadian Exploration Expense, Canadian Development Expense, flow through shares and tax depreciation rates for oil sands leases and building mines.

Ottawa said it would reduce the preferential deduction rates for intangible capital expenses in oil sands projects, to align them with the rates in the conventional oil and gas sector, phased in over five years.

The full text of the GBC’s recommendations is available here.

Wednesday, March 16, 2011

Shareholder activism growing among institutional investors

A survey conducted by the Shareholder Association for Research and Education (SHARE) reveals a growing intolerance among institutional investors for poor corporate governance practices. Those same investors are also more willing to publicly reveal how they casts their votes at annual general meetings.

Over the last five years, the survey notes that the proportion of survey respondents publicly disclosing their voting record has grown to 42% in 2010 from just 11% in 2005.

“We hear a lot of talk about increasing shareholder activism in Canada,” says SHARE’s Director of Law and Policy Laura O’Neill, “and this survey delivers solid evidence that leading investment managers are using their voting power to push back against poor governance and undue deference to management.”

The survey lists a number of “bellwether” votes including:

-- The election of the slate of directors at Linamar Corporation where 54% of shareholders withheld their votes;
-- The election of Brett Godfrey to the Board of WestJet Airlines Ltd where 41% of shareholders withheld their votes;
-- Approval of amendments to the options plan at TransAlta Corporation, opposed by 48% of shareholders;
-- An NEI Investments proposal requesting a climate change report at agricultural firm Viterra supported by 23% of shareholders; and
-- A Meritas Funds proposal calling for a shareholder advisory vote on executive compensation at Methanex Corporation supported by 64% of shareholders.

However, there are still hurdles to overcome. A lack of disclosure by many issuers continues to prevent shareholders from knowing the margin of approval or defeat on the matters they vote. No numeric vote results were released by companies in almost one-third of the votes in this year’s survey.

“The failure of so many public companies to provide any information about vote outcomes beyond ‘pass’ or ‘fail’ is permitted by regulations in Canada, but it is poor practice and suggests a lack of attention to shareholder views,” said O’Neill.

“Two investment managers stand out for their commitment to transparency,” according to Charley Beresford, Executive Director of the Columbia Institute, a survey sponsor. “Leith Wheeler Investment Counsel and Greystone Managed Investments are the only Canadian pension fund managers that have responded to the survey every year for ten years and we want to acknowledge this outstanding record.”

The Canadian Key Proxy Vote Survey is a project of the Columbia Institute, Fonds de solidarité (FTQ) and the Shareholder Association for Research and Education.

Monday, March 7, 2011

Top brands lack leadership on climate change

A report issued today by EIRIS concludes that more than two-thirds of the world’s top 100 brands are failing on climate change.

The report Cool Brands versus Hot Brands? focuses on the world's leading 100 brands, as identified by Interbrand, and finds that 69% of those with a high climate change impact lack adequate policies, management systems and reporting on climate change.

“Companies risk eroding brand value by failing to respond to the climate change concerns and expectations of customers, investors, NGOs and other key stakeholder groups,” EIRIS stated in a news release accompanying the report. “EIRIS's analysis reveals surprising differences in the way efforts to tackle climate change are embedded within a company's culture. Research parameters include product impacts, long-term targets, executive remuneration and disclosure.”

Gillette (ranked 3rd in Interbrand's top 100) achieved the highest overall climate change rating in EIRIS' analysis. The brand has established long-term targets on emissions reduction and displayed strong reporting against those targets.

Porsche, on the other hand, (ranked 72nd in Interbrand's top 100) achieved one of the lowest climate change scores in EIRIS's climate change analysis. This contrasts with other leading brands in the automobile and parts sector such as Toyota.

There are other examples of major gaps between companies in the same sector, such as technology. Dell (Interband rank 42) has linked executive remuneration to climate change performance, established both long and short-term targets and has improved product-related climate change emissions. However, Apple (Interbrand rank 17) has failed to implement any of these measures. On the other hand, Apple has shown an improvement in reducing its GHG emissions whilst Dell's GHG gas emissions have increased.

"The potential reputational damage to brand value associated with a failure to respond to the risks from climate change can have a direct impact on a company's profitability. A lack of mitigation measures can also lead to the loss of business productivity and business interruption" said Carlota Garcia-Manas, Head of Research at EIRIS.

The report is part of a wider annual climate change tracker EIRIS produces, analyzing the top 300 companies and their efforts to tackle climate change.
That report indicates that 33% of companies have a significant climate change impact. Of this 33%, only 27% are adequately managing the climate change risks they face. Sixty percent have now established short-term targets, but only 46% have set long-term targets.

Holding Canadian Corporations Accountable for Human Rights Abuses Abroad

The U of T’s Faculty of Law organized a mesmerizing set of workshops last Friday to address the issue of accountability by Canadian extractive companies operating abroad. The International Human Rights Program co-presented with the Canadian Centre for International Justice and Amnesty International. Many thanks to Marilyn McKim who attended the session and wrote it up for SRI Monitor, and my apologies to Marilyn because I had to edit it for length!

Audrey Macklin, Professor, Faculty of Law,opened the afternoon session with a caution about calls for transparency from corporations about how they operate. Transparency in reporting should result in accountability, she said, but one must always question who is collecting the information, and who is verifying it before it can be said to have integrity.

The speakers then shared some reflections on accountability.

Catherine Coumans of Mining Watch claims “The mining industry is on the wrong side of history.” She used Barrick Gold’s Porgera Mine in Papua New Guinea as an example. See their latest report here. John Ruggie, she said, had rightly identified the problem as a governance gap. Corporations have great guidelines of behaviour but they are voluntary, so violations cannot be prosecuted in a court of law. Voluntary measures are not evenly applied across jurisdictions, and are not enforceable. The solution is for home states to take regulatory reforms, but that’s unlikely to happen. Time and again she finds that corporations are blocking efforts that could bring justice to those who have been wronged by corporate crimes.

Peter Julian, NDP MP, has prepared a bill, C-354, to submit to Parliament. It would address that governance gap. To create a law in Canada is important because, he explained, 75% of the world’s mining and exploration companies are centred in this country. Many of them are violating laws and creating harm to people and the environment, and yet are not suffering the consequences. Many mining companies lobbied against John MacKay’s Private Members’ Bill C-300 last fall because they felt it would “stain the reputation of Canada.” Peter Julian’s view is that it’s corporations’ bad actions, not the Bill, that stain Canada’s reputation. His bill would enable foreign nationals to bring complaints to a Canadian court. But Mr. Julian will not bring it forward in this session of parliament since the current composition of parliament would allow no chance of the bill’s passage. Bill C-354 enumerates the violations that could be prosecuted, such as genocide, rape, murder and has no time limit by which a complaint must be brought. Since it provides for a federal court to hear cases, which Bill C-300 did not, it may pick up support from some mining companies that are serious about their social responsibility. He feels that the best strategy to garner support for Bill C-354 would be to find allies among those mining companies.

Penelope Simons, law professor at the University of Ottawa, worries that Bill C-354 does not address state immunity in cases where, for example, a government fails to alert the population of an impending environmental emergency. Bill C-483 which is now before the House of Commons, does do this. It is one of five in the area of corporate accountability that are currently being discussed by MPs.

While it is a positive sign that corporate accountability is being championed by individual MPs, we look forward to more policy being adopted by the parties themselves. Perhaps the impending election will give us a chance to raise the profile of these issues.

Wednesday, March 2, 2011

Ashley Hamilton's Proxy Preview

Last week I participated in the 2011 Proxy Preview webinar hosted by As You Sow and the Sustainable Investments Institute (SI2). There are some interesting topics on the agenda this year, so I thought I'd give you a preview of the proxy voting trends for 2011.

Canada's proxy season is shaping up to be fairly quiet. To date there are 60 recorded shareholder proposals filed at Canadian companies. The vast majority of the proposals (40) were filed by MEDAC on issues such as gender parity on Canadian boards, tax havens and executive compensation. There is no doubt that following the financial crisis, executive compensation is the big issue this year. No fewer than thirty-one proposals were filed asking companies to review executive compensation practices, which means this will be the issue to watch over the next few months. Some others will be interesting to watch as well.

IA Clarington Inhance filed proposals on the issue of free, prior and informed consent (FPIC) of indigenous peoples at four companies (Teck Resources, Bank of Nova Scotia, Toronto Dominion Bank, and Royal Bank of Canada). In 2009, Bâtirente and RRSE filed a shareholder proposal asking Talisman Energy to prepare a report outlining the benefits and costs of adopting an FPIC policy. This led to Talisman agreeing to prepare a groundbreaking report, which was published in mid-2010. IA Clarington appears to be following this lead with two of its FPIC proposals this year. In addition, it has also filed proposals with Encana on hydraulic fracturing, and with Enbridge regarding the controversial Northern Gateway Pipeline Project, which faces numerous challenges as it snakes its way through dozens of separate indigenous territories.

Meritas Mutual Funds has filed six proposals on the 'say on pay' issue, asking companies to give shareholders an annual vote to approve executive compensation. Meritas has been leading the say on pay issue in Canada since 2008. The team at NEI Investments has filed only four proposals this season, focusing on executive compensation (Bank of Nova Scotia, Toronto Dominion Bank and Laurentian Bank) and climate change (Great West Lifeco). Finally, for the first time, a prominent US shareholder advocate, Trillium Asset Management, filed a shareholder proposal north of the border with Royal Bank of Canada. The proposal asked the bank to disclose the risks associated with financing oil sands expansion in the Alberta boreal forest. Trillium withdrew the proposal prior to the company's annual general meeting on March 3rd after reaching an agreement with the bank.

Overall, the proxy season in Canada will be quiet compared with past years. Many of the active investors in Canada, such as NEI Investments and Meritas Mutual Funds, have filed fewer proposals this year, opting for constructive dialogue with companies instead. This is a welcome sign, likely an indication that progress is being made behind the scenes. Increasingly, companies are open to considering changes proposed by shareholders, and are willingly participating in discussions and dialogue addressing challenging issues. This openness to constructive engagement can be a win for responsible investors, demonstrating that even minority shareholders can exert influence without resorting to public proxy confrontations.

Ashley Hamilton is a shareholder engagement specialist and the Principal of Ashley Hamilton Consulting. Contact her at

Tuesday, March 1, 2011

PIIF – a new UNPRI initiative

I love the SRI world – new acronyms popping up every day!
PIIF stand for Principles for Investors in Inclusive Finance, an initiative of investors and Her Royal Highness Princess Máxima of the Netherlands, the UN Secretary-General’s Special Advocate for Inclusive Finance for Development. The group developed PIIF together with the United Nations-backed Principles for Responsible Investment (PRI), the World Bank’s Consultative Group to Assist the Poor (CGAP), and several key industry players.

Signatories to the Principles acknowledge that poorer clients are often disadvantaged by asymmetries in financial knowledge, power, and influence. By signing the principles, investors state their commitment to fair treatment and protection of the interests of the ultimate client in inclusive finance—low-income households and small and medium-enterprises.

Signatories commit to adhering to and promoting 7 principles, each of which has a range of possible actions. The principles are as follows:
1. Range of Services. We will actively support retail providers to innovate and expand the range of financial services available to low income people in order to help them reduce their vulnerability, build assets, manage cash-flow, and increase incomes.

2. Client Protection. We believe that client protection is crucial for low income clients. Therefore we will integrate client protection in our investment policies and practices.

3. Fair treatment. We will treat our investees fairly with appropriate financing that meets demand, clear and balanced contracts, and fair processes for resolving disputes.

4. Responsible Investment. We will include environmental, social and corporate governance (ESG) issues in our investment policies and reporting.

5. Transparency. We will actively promote transparency in all aspects.

6. Balanced Returns. We will strive for a balanced long-term social and financial risk-adjusted return that recognizes the interests of clients, retail providers, and our investors.

7. Standards. We will collaborate to set harmonised investor standards that support the further development of inclusive finance.

Sarona Asset Management is a Canadian signatory to PIIF, and one of the original 40 entities to be on board at the launch. Gerhard Pries, President of Sarona, is very excited to be part of the new initiative. “I would say that, as private investors become more concerned about the social and environmental impact of their capital investments, such initiatives are a great way to turn their concerns into actions. The PIIF is a commitment by investors to invest only when certain standards of ethics and community benefit are met.”

PIIF is adding new signatories every day reflecting growing interest and investments into inclusive finance and demand for investor guidance. Read the full Principles here.