Responsible Investor

Another example of co-operation was the campaign launched earlier this year by PRI signatories representing $2.13 trillion in assets to lobby companies paying lip service to the Compact. Investors say they feared companies adhering positively to the Compact were becoming frustrated at others taking a “free-ride”: vaunting membership but failing to deliver on action.
Kell says the investor campaign will be not a one-off: “There are many such campaigns going on behind the scenes regarding investor engagement on the Global Compact. Similar arguments are being made on a one-to-one basis between investors and companies. We will help to facilitate them when we can.” Last month, APG Investments, the fund manager to the €250bn ($315bn) ABP pension fund in the Netherlands, said it was looking for what it called a large number of “unexploded bombs” in terms of companies failing to adhere to their commitments to the Compact, in one of the largest ever such reviews by an institutional investor. Such pressure to make both the Compact and the PRI perform better is critical, says Kell: “The Global Compact is a voluntary initiative and has pushed companies to sign up because of a commitment to its standards. The good news is that a lot of companies have understood this at a rhetorical level, but the benefits of doing it right and explaining the business case for adherence are not clear. Therefore, it makes a huge difference for us to get the investors on side with a position on the risk case of not signing and the business opportunities linked to being signatories.”

The Compact hasn’t researched the causality/materiality issue itself, according to Kell, but he says recent studies show there is a link, albeit a qualified one:

“Over time, self-reporting is key, but I think at some point, a little like the Global Compact, the PRI will have to look at differentiation.”

“I take the Goldman Sachs argument that a company’s ability to be on top of ESG issues is increasingly necessary to sustain and maintain market leadership. In other words if you get your ESG engagement right it doesn’t mean you are a successful company, but if you don’t then you’ll find it difficult to sustain leadership. One example is Siemens, the German engineering company. Earlier this year, I met with executives after their problems and they are now re-evaluating their whole business approach: supply chain management, resource management, etc. Large corporations can no longer turn a blind eye to these issues.”
It took the Global Compact more than five years to introduce its Communication on Progress (COP) reporting mechanism. Kell says it is likely the PRI will more rapidly adopt a public COP reporting system, but probably not for a year or so: “I think investors still have a lot to learn on these issues because there remains a lot of short-termism in finance, although I’d like to think this is changing gradually. If you think back to the Asian

Not a member? Register here »