Bill C-300, An Act Respecting Corporate Accountability for the Activities of Mining, Oil or Gas Corporations in Developing countries, was narrowly defeated in the House of Commons yesterday. The Private Members bill was sponsored by Liberal John McKay, who represents the riding of Scarborough Guildwood in Toronto.
The Bill called upon the government to create guidelines for responsible behavior for Canadian mining, oil and gas companies operating overseas, and to establish a system whereby individuals could file complaints against companies, alleging environmental or social wrongdoing. The legislation was characterized by Human Rights Watch as '...a modest, sensible piece of legislation that would be a small step to help improve human rights and the reputation of Canadian companies around the world.' Nonetheless, it received significant attention from the mining industry which launched an all out lobbying effort to have the bill defeated. Ultimately, they were helped along by 13 Liberals who managed to skip yesterday's vote, notably Michael Ignatieff and Gerard Kennedy.
While Socially Responsible Investors use engagement as a tool to push companies to improve their behavior, we recognize that public policy and regulation also have a significant role to play. Ken Neumann, National Director for Canada of the United Steelworkers, commented "Through our long term international connections, we have witnessed the negligence and abuse that some Canadian mining companies use to exploit workers and communities and degrade the environment in developing countries. The Liberal party, and especially Michael Ignatieff, displayed an astonishing lack of commitment to one of their own member's efforts to do the right thing with this bill."
See how your MP voted.
Thursday, October 28, 2010
Wednesday, October 27, 2010
Regulators pushing for more environmental disclosure
Canadian regulators expect improved environmental disclosure from the country’s reporting issuers and have released a guidance document towards meeting that goal.
“Issuers are increasingly recognizing the current and potential effects on their performance and operations, both positive and negative, that are associated with environmental matters,” states the document, which was released by the Canadian Securities Administrators, the umbrella group for Canada’s provincial securities regulators, yesterday.
“A number of investors are increasingly interested in how environmental matters affect issuers and have been requesting information about these matters from issuers through a number of avenues, such as shareholder resolutions and the issuance of surveys,.”
And that where’s the disconnect lies, the CSA document suggests.
During the OSC’s 2009 corporate review, concerns were expressed about the adequacy of disclosure about environmental matters.
For example, material information is found in voluntary reports and not in securities regulatory filings; and the information provided is not necessarily complete, reliable or comparable among issuers.
“Boilerplate disclosure does not provide meaningful information to investors,” the CSA document notes. “The information is not integrated into financial reporting.”
And it’s not as if those guidelines don’t already exist: there are five key disclosure requirements in the CSA’s documents that relate to environmental matters
The documents list the numerous risks an issuer faces when it does not include robust environmental reporting, such as litigation, physical risks (including health and safety), regulatory risks, and reputational risks. “How an issuer addresses environmental matters can have a positive or negative impact on core intangible assets such as brand value and consumer confidence.”
And that last point could be the key, particularly in the wake of the disastrous Gulf oil spill.
Eugene Ellmen, executive director of the Social Investment Organization, concedes that that the CSA is only issuing guidelines, which won’t actually change reporting obligations.
“However, as a guidance document, I expect that this will receive a lot of attention. Corporate counsel and CFOs place a lot of weight on guidance from securities commissions, so we believe this will create new expectations on companies on environmental reporting issues. This is especially true because companies are paying so much attention on environmental issues in the wake of the BP oil disaster.”
“While it’s not mandatory that companies follow the recommendations, the guidance includes practical, easily implementable suggestions that we believe will establish a new paradigm for corporate reporting on environmental issues.”
Ellmen points out one particular example of an issue he thinks will be important: asset retirement obligations (AROs). “The guidance is quite clear that where AROs are material to an issuer, then information on the costs of retiring the asset should be disclosed by the issuer if they are easily available. This is expected to increase the amount of information on the costs of remediating the oil sands sites in Alberta, for example.
“Another example is on climate change. If companies have expectations for the price of carbon in the future, it is recommended that they make reasonable disclosures on this, and discuss the impacts of various price scenarios on their future operations.”
“We believe that this will create higher expectations for environmental disclosure by Canadian companies, and help to establish a new paradigm for environmental reporting globally.”
“Issuers are increasingly recognizing the current and potential effects on their performance and operations, both positive and negative, that are associated with environmental matters,” states the document, which was released by the Canadian Securities Administrators, the umbrella group for Canada’s provincial securities regulators, yesterday.
“A number of investors are increasingly interested in how environmental matters affect issuers and have been requesting information about these matters from issuers through a number of avenues, such as shareholder resolutions and the issuance of surveys,.”
And that where’s the disconnect lies, the CSA document suggests.
During the OSC’s 2009 corporate review, concerns were expressed about the adequacy of disclosure about environmental matters.
For example, material information is found in voluntary reports and not in securities regulatory filings; and the information provided is not necessarily complete, reliable or comparable among issuers.
“Boilerplate disclosure does not provide meaningful information to investors,” the CSA document notes. “The information is not integrated into financial reporting.”
And it’s not as if those guidelines don’t already exist: there are five key disclosure requirements in the CSA’s documents that relate to environmental matters
The documents list the numerous risks an issuer faces when it does not include robust environmental reporting, such as litigation, physical risks (including health and safety), regulatory risks, and reputational risks. “How an issuer addresses environmental matters can have a positive or negative impact on core intangible assets such as brand value and consumer confidence.”
And that last point could be the key, particularly in the wake of the disastrous Gulf oil spill.
Eugene Ellmen, executive director of the Social Investment Organization, concedes that that the CSA is only issuing guidelines, which won’t actually change reporting obligations.
“However, as a guidance document, I expect that this will receive a lot of attention. Corporate counsel and CFOs place a lot of weight on guidance from securities commissions, so we believe this will create new expectations on companies on environmental reporting issues. This is especially true because companies are paying so much attention on environmental issues in the wake of the BP oil disaster.”
“While it’s not mandatory that companies follow the recommendations, the guidance includes practical, easily implementable suggestions that we believe will establish a new paradigm for corporate reporting on environmental issues.”
Ellmen points out one particular example of an issue he thinks will be important: asset retirement obligations (AROs). “The guidance is quite clear that where AROs are material to an issuer, then information on the costs of retiring the asset should be disclosed by the issuer if they are easily available. This is expected to increase the amount of information on the costs of remediating the oil sands sites in Alberta, for example.
“Another example is on climate change. If companies have expectations for the price of carbon in the future, it is recommended that they make reasonable disclosures on this, and discuss the impacts of various price scenarios on their future operations.”
“We believe that this will create higher expectations for environmental disclosure by Canadian companies, and help to establish a new paradigm for environmental reporting globally.”
2010 Clean Capitalism Report
A webinar today launched the 2010 Clean Capitalism Report, a joint initiative of Corporate Knights and the Delphi Group. The report includes an analysis of the ESG status of S&P/TSX 60 companies, benchmark rankings, and best practice highlights.
The intention of the report is to provide companies, regulators and investors with data and analysis to help drive sustainability performance for leading companies in Canada. Data was collected on 13 indicators in 4 categories, Environmental, Social, Governance and Transparency.
Toby Heaps of Corporate Knights summarized 3 core takeaways from the report, all of which are ‘encouraging’:
• companies who do not have sustainability formally embedded in their governance structure are now in a minority
• linking compensation to sustainability performance is mainstream and deepening
• disclosure of core environmental metrics is approaching critical thresholds, increasingly driven by investors
However, one of the most distressing findings was that 41 of these 60 companies do not have a single visible minority or Aboriginal on their Board. To the extent that Boards have any diversity at all, it is the presence of a few women. Steven Pacifico, Delphi’s Manager of Stakeholder Relations and Sustainability, got props for highlighting this result and pointing out that “these numbers are low and not representative of the Canadian multicultural landscape.”
An interesting discussion took place regarding the lack of consistent and comparable data. Melissa Shim of Corporate Knights stated at the beginning of the webinar that there were data limitations regarding comparability and consistency particularly for indicators that fall under voluntary disclosure. Steven Pacifico said there was “…a real need for standardization of metrics, especially for the investor community. This will make it easier for the people who seek out this information to be able to analyze it, and push for performance improvement.” Toby Heaps added that work was being done on this front, notably the International Integrated Reporting Committee, a joint venture of the Prince of Wales’ A4S (Accounting for Sustainability) project and the GRI.
While transparency is a worthy goal, Ted Ferguson of Delphi identified the thorny issue of how to reward transparency, but still acknowledge the poor results that are being revealed – “a tension that will be here for a while”
Ted Ferguson concluded the call by suggesting that we are seeing “a shifting of greater responsibilities and higher expectations onto the corporation as part of the social contract.”
The 2010 Clean Capitalism Report is the first edition of an annual ‘yearbook’ tracking sustainability performance and trends for the S&P/TSX 60 companies. To order the report, please contact Sue Barrett of the Delphi Group.
The intention of the report is to provide companies, regulators and investors with data and analysis to help drive sustainability performance for leading companies in Canada. Data was collected on 13 indicators in 4 categories, Environmental, Social, Governance and Transparency.
Toby Heaps of Corporate Knights summarized 3 core takeaways from the report, all of which are ‘encouraging’:
• companies who do not have sustainability formally embedded in their governance structure are now in a minority
• linking compensation to sustainability performance is mainstream and deepening
• disclosure of core environmental metrics is approaching critical thresholds, increasingly driven by investors
However, one of the most distressing findings was that 41 of these 60 companies do not have a single visible minority or Aboriginal on their Board. To the extent that Boards have any diversity at all, it is the presence of a few women. Steven Pacifico, Delphi’s Manager of Stakeholder Relations and Sustainability, got props for highlighting this result and pointing out that “these numbers are low and not representative of the Canadian multicultural landscape.”
An interesting discussion took place regarding the lack of consistent and comparable data. Melissa Shim of Corporate Knights stated at the beginning of the webinar that there were data limitations regarding comparability and consistency particularly for indicators that fall under voluntary disclosure. Steven Pacifico said there was “…a real need for standardization of metrics, especially for the investor community. This will make it easier for the people who seek out this information to be able to analyze it, and push for performance improvement.” Toby Heaps added that work was being done on this front, notably the International Integrated Reporting Committee, a joint venture of the Prince of Wales’ A4S (Accounting for Sustainability) project and the GRI.
While transparency is a worthy goal, Ted Ferguson of Delphi identified the thorny issue of how to reward transparency, but still acknowledge the poor results that are being revealed – “a tension that will be here for a while”
Ted Ferguson concluded the call by suggesting that we are seeing “a shifting of greater responsibilities and higher expectations onto the corporation as part of the social contract.”
The 2010 Clean Capitalism Report is the first edition of an annual ‘yearbook’ tracking sustainability performance and trends for the S&P/TSX 60 companies. To order the report, please contact Sue Barrett of the Delphi Group.
Wednesday, October 20, 2010
AIMCo signs on to UNPRI
The Alberta Investment Management Corporation, with assets under management of $70 billion, has become the latest major Canadian pension plan to become a signatory to the United Nations Principles for Responsible Investment UNPRI).
AIMCo joins ten other Canadian institutional PRI signatories, including Caisse de dépôt et placement du Québec, Canada Pension Plan Investment Board, British Columbia Municipal Pension Plan, OPSEU Pension Trust, Public Service Alliance of Canada (PSAC) Pension Fund and the British Columbia Investment Management Corporation. Including investment asset managers and professional services partners, Canada has 34 signatories; the global total is 822, according to the PRI website.
Other recent PRI signatories include Thomson Reuters USA and U.S. asset management giant Capital Group International, which manages an estimated $1 trillion in assets under management. Capital is privately-held and largely eschews marketing, however it is considered one of the more mainstream asset managers who have signed on to the PRI. Capital offers a large group of mutual funds in Canada, skewed towards international equity products.
The UNPRI, established in 2005, provides a framework for investors to consider the growing view among investment professionals that environmental, social and corporate governance (ESG) issues can affect the performance of investment portfolios.
AIMCo joins ten other Canadian institutional PRI signatories, including Caisse de dépôt et placement du Québec, Canada Pension Plan Investment Board, British Columbia Municipal Pension Plan, OPSEU Pension Trust, Public Service Alliance of Canada (PSAC) Pension Fund and the British Columbia Investment Management Corporation. Including investment asset managers and professional services partners, Canada has 34 signatories; the global total is 822, according to the PRI website.
Other recent PRI signatories include Thomson Reuters USA and U.S. asset management giant Capital Group International, which manages an estimated $1 trillion in assets under management. Capital is privately-held and largely eschews marketing, however it is considered one of the more mainstream asset managers who have signed on to the PRI. Capital offers a large group of mutual funds in Canada, skewed towards international equity products.
The UNPRI, established in 2005, provides a framework for investors to consider the growing view among investment professionals that environmental, social and corporate governance (ESG) issues can affect the performance of investment portfolios.
Wednesday, October 13, 2010
European SRI assets nearly double to five trillion euros
Eurosif today released its 2010 study of European SRI assets, which revealed a “spectacular” 87% increase to five trillion euros, up from 2.7 trillion euros in 2008.
The European study breaks down responsible investment assets under management (AUM) to Core SRI and Broad SRI. Core SRI, consisting of values-based exclusions and positive screens, totalled 1.2 trillion euros, while Broad SRI, representing simple exclusion, engagement and integrations approaches, was estimated at 3.8 trillion euros.
“SRI has shown a remarkable resilience to the ongoing global financial crisis, in spite of evident country variations,” the study says.
Eugene Ellmen, executive director of Canada’s Social Investment Organization agrees that the report confirms an impression held by the SRI industry worldwide that there has been continuing buoyancy even after the meltdown of 2008. “In the European case, this has been led by some explosive growth in ESG integration, which is the growing use of tools to incorporate environmental, social and governance factors into investment analysis and practice,” he added.
The European SRI market remains driven by institutional investors, representing 66% of total AUM. “These investors are especially active in some of the larger European markets, such as the Netherlands, Switzerland, the Nordic countries and the United Kingdom.”
The share of retail investors has also increased in nearly all countries covered in the study, 19 in all, including for the first time, Poland, Greece, Cyprus, Estonia, Latvia and Lithuania. “The Eurosif research shows that Austria, Germany, Belgium and France have all seen their share of retail markets increase notably.”
Bonds are now the favoured asset class of European SRI investors at 53%, while equities have dropped to 33%. This is partially explained by the dominance of institutional investors, who traditionally allocate substantial funds to fixed income investments.
Microfinance funds are also beginning to generate interest from SRI investors, with survey participants noting the need for asset diversification in their portfolios.
“A vast majority of SRI investors predict that demand from institutional investors will be the main driver for SRI growth in the next three years,” the study notes. “Other important drivers include demand from retail investors, media coverage, legislation and international initiatives, such as the UNPRI.”
Perhaps surprisingly, the survey reveals that the global financial crisis had a more positive than negative impact on the SRI industry, with respondents saying that the financial crisis made them more aware of the need to integrate ESG risks. “From a demand perspective, the increase for more transparent products has correlated well with the SRI philosophy. Environmental and social crises have also acted as a wake-up call for many investors.”
This is the fourth time (2010, 2008, 2006 and 2003) Eurosif has released a detailed report on the European SRI market. Canada’s Social Investment Organization has been releasing similar bi-ennial reports on the Canadian SRI market since 2000.
The 2008 Canadian report concluded that assets invested according to socially responsible guidelines increased to $609 billion, a 21% increase from 2006. “In Canada, the SIO will be conducting research this fall to determine the size and scale of the industry as of June 30, 2010,” Ellmen notes. “We don’t expect to see the same kind of growth reported in Europe, but we do expect to see some increase from our figures in 2008, due to growth from large public pension plans, foundations, high net worth individuals and the retail sector.” The next SIO report is due in early 2011.
Read the full Eurosif study.
The European study breaks down responsible investment assets under management (AUM) to Core SRI and Broad SRI. Core SRI, consisting of values-based exclusions and positive screens, totalled 1.2 trillion euros, while Broad SRI, representing simple exclusion, engagement and integrations approaches, was estimated at 3.8 trillion euros.
“SRI has shown a remarkable resilience to the ongoing global financial crisis, in spite of evident country variations,” the study says.
Eugene Ellmen, executive director of Canada’s Social Investment Organization agrees that the report confirms an impression held by the SRI industry worldwide that there has been continuing buoyancy even after the meltdown of 2008. “In the European case, this has been led by some explosive growth in ESG integration, which is the growing use of tools to incorporate environmental, social and governance factors into investment analysis and practice,” he added.
The European SRI market remains driven by institutional investors, representing 66% of total AUM. “These investors are especially active in some of the larger European markets, such as the Netherlands, Switzerland, the Nordic countries and the United Kingdom.”
The share of retail investors has also increased in nearly all countries covered in the study, 19 in all, including for the first time, Poland, Greece, Cyprus, Estonia, Latvia and Lithuania. “The Eurosif research shows that Austria, Germany, Belgium and France have all seen their share of retail markets increase notably.”
Bonds are now the favoured asset class of European SRI investors at 53%, while equities have dropped to 33%. This is partially explained by the dominance of institutional investors, who traditionally allocate substantial funds to fixed income investments.
Microfinance funds are also beginning to generate interest from SRI investors, with survey participants noting the need for asset diversification in their portfolios.
“A vast majority of SRI investors predict that demand from institutional investors will be the main driver for SRI growth in the next three years,” the study notes. “Other important drivers include demand from retail investors, media coverage, legislation and international initiatives, such as the UNPRI.”
Perhaps surprisingly, the survey reveals that the global financial crisis had a more positive than negative impact on the SRI industry, with respondents saying that the financial crisis made them more aware of the need to integrate ESG risks. “From a demand perspective, the increase for more transparent products has correlated well with the SRI philosophy. Environmental and social crises have also acted as a wake-up call for many investors.”
This is the fourth time (2010, 2008, 2006 and 2003) Eurosif has released a detailed report on the European SRI market. Canada’s Social Investment Organization has been releasing similar bi-ennial reports on the Canadian SRI market since 2000.
The 2008 Canadian report concluded that assets invested according to socially responsible guidelines increased to $609 billion, a 21% increase from 2006. “In Canada, the SIO will be conducting research this fall to determine the size and scale of the industry as of June 30, 2010,” Ellmen notes. “We don’t expect to see the same kind of growth reported in Europe, but we do expect to see some increase from our figures in 2008, due to growth from large public pension plans, foundations, high net worth individuals and the retail sector.” The next SIO report is due in early 2011.
Read the full Eurosif study.
Monday, October 4, 2010
Accountants group assesses mainstreaming of ESG issues
Mainstream institutional investors are beginning to incorporate ESG factors into their decision-making process, according to a new report from the Canadian Institute of Chartered Accountants (CICA).
“While a few Canadian institutional investors were early adopters of integrating ESG issues into investment decision making, more now appear to be doing so,” the report states. “Further, as capital flows are increasingly global, investment policies and practices in other jurisdictions around the world may, in future, be expected to impact Canadian capital markets and issuers.”
ESG information was originally viewed as being of interest only to “socially responsible” and/or “ethical” investors, the report notes, but there is now evidence that ESG issues are increasingly of interest to mainstream institutional investors in Canada and worldwide.
“Institutional investors tend to have a longer investment time horizon and are increasingly showing signs of interest in ESG factors,” said Lisa French, principal, guidance and support, CICA in a press release accompanying the study. “These investors are expressing their expectations for corporate disclosures beyond what is currently provided in financial reporting.”
The CICA report points out that two significant legal interpretations about the principle of fiduciary responsibility of investment trustees has led to a fundamental shift in consideration of ESG matters in investment decision making. “In particular, in the past, trustees may have argued that it was beyond their fiduciary responsibilities to consider ESG matters in an investment decision. Today, it may be considered a breach of fiduciary duty not to consider such matters.”
“Our view is that ESG issues directly affect long-term investment returns,” the British Columbia Investment Management Corporation states. “As a result, we are active equity owners and encourage positive ESG practices through our proxy voting decisions, direct engagement with companies, and interactions with regulators and policy makers.”
Interestingly, some institutional investors are beginning to look to ESG information not only to better understand risks but also because they see the possibility for a “sustainability alpha” (alpha is defined as returns achieved above the costs of the risks assumed).
Many interviewees in the study pointed to serious shortcomings in the quality of ESG information currently available. They called for the creation of a standard format or template for presenting information that would assist investors in locating the data they want for decision making.
Other investors noted the lack of standardized, comparable, sector-based metrics that are updated regularly (and possibly audited by an independent party).
“Metrics need to be consistently and comparably defined and calculated,” the study says. “This would serve to enhance the usefulness of ESG data points, enabling them to be incorporated with more confidence into models used by fundamental analysts.”
Poor corporate disclosure was also an issue for institutional investors, as was the timeliness of ESG information. “Some companies, for example, provide annual sustainability reports but they are not normally published at the same time as the annual financial reports; other companies only provide sustainability reports every two years or on a less frequent basis.”
CICA says that regulators have a responsibility to ensure that material information needed by capital markets is provided in regulatory filings. Other organizations, such as industry associations, academic institutions, professional bodies and non-governmental groups could assist capital markets by conducting research, developing key performance indicators by industry and working to develop a more integrated framework that would deliver comparable, consistent and reliable information for investors.
For the purposes of the study, interviews were conducted in Q4 2009 with staff involved with ESG analysis at 15 mainstream institutional investors and two service providers. The interviews focused on what ESG information these investors seek, where they obtain it, how they use it and how satisfied they are with the information they obtain.
“While a few Canadian institutional investors were early adopters of integrating ESG issues into investment decision making, more now appear to be doing so,” the report states. “Further, as capital flows are increasingly global, investment policies and practices in other jurisdictions around the world may, in future, be expected to impact Canadian capital markets and issuers.”
ESG information was originally viewed as being of interest only to “socially responsible” and/or “ethical” investors, the report notes, but there is now evidence that ESG issues are increasingly of interest to mainstream institutional investors in Canada and worldwide.
“Institutional investors tend to have a longer investment time horizon and are increasingly showing signs of interest in ESG factors,” said Lisa French, principal, guidance and support, CICA in a press release accompanying the study. “These investors are expressing their expectations for corporate disclosures beyond what is currently provided in financial reporting.”
The CICA report points out that two significant legal interpretations about the principle of fiduciary responsibility of investment trustees has led to a fundamental shift in consideration of ESG matters in investment decision making. “In particular, in the past, trustees may have argued that it was beyond their fiduciary responsibilities to consider ESG matters in an investment decision. Today, it may be considered a breach of fiduciary duty not to consider such matters.”
“Our view is that ESG issues directly affect long-term investment returns,” the British Columbia Investment Management Corporation states. “As a result, we are active equity owners and encourage positive ESG practices through our proxy voting decisions, direct engagement with companies, and interactions with regulators and policy makers.”
Interestingly, some institutional investors are beginning to look to ESG information not only to better understand risks but also because they see the possibility for a “sustainability alpha” (alpha is defined as returns achieved above the costs of the risks assumed).
Many interviewees in the study pointed to serious shortcomings in the quality of ESG information currently available. They called for the creation of a standard format or template for presenting information that would assist investors in locating the data they want for decision making.
Other investors noted the lack of standardized, comparable, sector-based metrics that are updated regularly (and possibly audited by an independent party).
“Metrics need to be consistently and comparably defined and calculated,” the study says. “This would serve to enhance the usefulness of ESG data points, enabling them to be incorporated with more confidence into models used by fundamental analysts.”
Poor corporate disclosure was also an issue for institutional investors, as was the timeliness of ESG information. “Some companies, for example, provide annual sustainability reports but they are not normally published at the same time as the annual financial reports; other companies only provide sustainability reports every two years or on a less frequent basis.”
CICA says that regulators have a responsibility to ensure that material information needed by capital markets is provided in regulatory filings. Other organizations, such as industry associations, academic institutions, professional bodies and non-governmental groups could assist capital markets by conducting research, developing key performance indicators by industry and working to develop a more integrated framework that would deliver comparable, consistent and reliable information for investors.
For the purposes of the study, interviews were conducted in Q4 2009 with staff involved with ESG analysis at 15 mainstream institutional investors and two service providers. The interviews focused on what ESG information these investors seek, where they obtain it, how they use it and how satisfied they are with the information they obtain.
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