Responsible Investor

Responsible Investment (UNPRI) that have committed to seek appropriate corporate disclosure on ESG issues. But, apart from the purely technical reporting aspects of this process, what is also needed are practical actions for investors to bring their influence to bear, and suitable tools to monitor and benchmark this activity. As a starting point, the UK governance review by Sir David Walker – with final submissions due at the end of next month – highlighted the need for institutional investors to engage more productively with investee companies to support long-term improvement in performance. Walker focused on ways to encourage major investors to see engagement as a form of discharging their obligations to their clients and act as responsible investors. His proposal endorses the Statement of Principles prepared by the Institutional Shareholders Committee in 2007 on best practice for institutional shareholders. This, together with the relevant parts of the combined code, would, he said, provide a “sound foundation for engagement policy”, and act as a possible example for other countries. The final piece in the jigsaw, however, is finding suitable tools to manage, monitor and report on this RI approach. A recent survey carried out by the Business Intelligence Unit of the Economist found this to be one of the major challenges for stakeholders: i.e. how

to find some way of benchmarking the level of progress with regard to governance implementation. Furthermore, investors should have the ability to influence and guide the benchmarked issues. For regulators, an electronic solution would provide the means to be able to apply some form of standardised approach to ‘engagement’ monitoring via current corporate data and financial institution reporting.
One finding of a recent OECD report on the global financial crisis , was that there was no effective flow of governance information to management, the board, investors, regulators and other stakeholders. Without such a tool, this state of affairs will continue. Corporate governance has rarely been such a high-profile, weighty issue. Getting it right is important. Let us hope that governments and regulators don’t ‘waste a good crisis’, as I heard one regulatory official say recently. What they must do is maximise the opportunity to deliver the real and meaningful change that would transform the governance of our financial and investment markets and mitigate against the likelihood of the kind of global financial crisis that we have witnessed over the past two years ever happening again.
Jonathan Lewis is founder and managing director of Governance Integrity Solutions (www.informgis.co.uk).

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