Responsible Investor

Monitoring and reporting on corporate governance is essential for responsible investment

Why meaningful reform will depend on clear and appropriate benchmarking.

The clamour for more responsible investment (RI) is probably only second in terms of volume to the call for better governance of the international banking industry following the financial markets collapses of the past couple of years. While banks have drawn the most ire from governments and central banks, regulators are looking increasingly at the role of institutional investors in the downfall of the global financial system and grappling with ways to ensure past mistakes are not repeated. While encouraging noises and draft initiatives are being proposed, what’s required is a fundamental change of view that puts responsible investment at the heart of any broad-based international governance changes.
There is no question that the financial crisis has highlighted the need to put sustainability issues at the core of investment decisions. The drive for unrealistically high, continuous returns was one of the key factors behind the markets’ collapse. By definition, responsible investment means investing in sustainable businesses with long-term visions and returns.
What is required is for institutions to focus on a ‘quadruple bottom line’ of: financial, environmental, social and governance factors. To achieve this I believe

that there are five main challenges for investors to overcome:
• Identifying and communicating issues on which companies must report.
• Defining the manner in which these issues must be reported – content, format, comparable statistics, etc.
• Defining the nature and regularity of reporting – e.g. annual report, separate ESG report, quarterly, annually, electronically.
• Bringing greater influence to bear on companies and how they conduct their business in line with ESG principles.
• Finding suitable tools with which to manage, monitor and report on RI investments and be able to influence the content of the tools used.
The Global Reporting Initiative (GRI) has done much work with regard to the first three points, and recently released a report on how companies can present their environmental, social and governance data, known as ESG disclosure, to meet the needs of mainstream investors. Most Fortune Global 250 companies now issue relevant reports. Around 15% of total, global capital markets – US$15 trillion – are managed by signatories to the United Nations Principles for

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