The top lawyer to address RI Europe with keynote address.
Cherie Blair CBE, QC, is one of the UK’s top barristers and an international specialist in human rights law – as well as being married to Tony Blair, the former UK Prime Minister.
Her involvement with institutional investors is not new: she was linked to a UK version of a US class action lawsuit for investors over the RBS accounting scandal: Read the RI story here.
Her latest work with investors, which she will address at RI Europe, is to examine how investors promoting better business practices could improve long-term returns.
Blair will look at the benefits of incorporating human rights and ESG criteria into the investment decision process, and the risks of not doing so. Founder and chair of legal firm Omnia Strategy, Blair advises business on how to integrate social, environmental and human rights issues into their core strategies.
She talks to Responsible Investor on how investors have a key part to play in this, and why this will help businesses improve long term returns.
Responsible Investor: We are delighted that you are speaking at RI Europe and I understand that you will talk about the role of investors in shaping better business practices. Why is this topic of interest to you and how has your thinking developed on the responsibility of investors as part of the chain of influence on companies?
Cherie Blair: I’m really looking forward to being at RI Europe this year and particularly delighted that the topic of good business practice is steadily gaining interest and new converts among investors. More and more of them are realizing that good practice is beneficial for business generally and certainly for shareholder returns. In fact, the evidence has never been clearer that social returns and market returns really do go hand in hand.
As a lawyer I’ve been interested in this issue for some years, and part of my role at Omnia Strategy is to advise businesses on how to integrate social, environmental and human rights issues into the core of their strategies. We also advise how, if not managed properly, these issues can cause huge damage to businesses, not only from a legal perspective but also because they can damage a company’s reputation, its ability to retain its customers and its social licence to operate.
Obviously investors have for a long time played a key role in shaping better business practices. We all remember the campaign of selective disinvestment from South Africa in the 1970s, aimed at undermining the apartheid regime. But the scope and intensity of investor involvement has increased markedly in recent years, and it’s no longer just about those kind of ethical considerations but also about environmental and social topics such as carbon emissions and executive pay.
RI: What are the benefits to investors of incorporating ESG and human rights factors into their decision-making processes and what are the risks of not doing so?
CB: I think the most important benefit – one that benefits all of us – is how it encourages investors to break the cycle of short termism and to take a longer term view of how a company is managed, its approach to risk and its wider culture. But for investors there are other benefits. As shareholders they have a direct financial interest in embracing ESG, as studies increasingly show how a company that incorporates social responsibility significantly outperforms other companies over the long-term, both in terms of the stock market but also in accounting performance. And more and more investors are clearly aware of this.
As for the risks of not incorporating these factors, they can be significant. It’s not only the financial penalties for human rights or environmental abuses, which can of course be severe. But it’s the damage to reputation, which is far more harmful over the long term. Obviously this will affect different companies in different ways but for those selling goods or services directly to the public, the risk is huge. We can all think of well-known companies that have endured a customer backlash against perceived unethical practice, a backlash that can be felt on a global scale and within a very short timeframe, given modern media.
And companies are all too aware of this. A recent report by The Economist on ‘Business and Human Rights’ found that what motivates the companies that have a human rights’ strategy, aside from ethical concerns, are: building sustainable relations with local communities, employee engagement, and protection of their brand and reputation. This broad range of factors can’t be built successfully over one financial quarter or even a couple of years. They need long-term engagement.
RI: Do you think these risks/benefits are financially material to investors, or should they just be part of good corporate citizenship? If the latter: how can that be promoted?
CB: They can be both. Investors can and do want to increase the value of their investment, and they can also be keen to promote good corporate citizenship for its own sake. The fact that promoting the latter can increase the former makes it pretty irresistible in my view.
But there is often a difficulty for asset managers in establishing a link between the information included in ESG reports and a company’s valuation. Which is why corporate social responsibility programmes are often linked to a company’s image and communication strategy rather than to their financial benefit. So clearly more needs to be done to improve that.
RI: Investors are probably still most likely to approach social and human rights issues as a financial factor from a risk-based perspective: how much would complicity in, or negligence surrounding, a human rights abuse cost?
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