How can investors drive the sustainability agenda at Rio+20?
Mark Robertson for the Guardian Professional Network | guardian.co.uk, Friday 11 May 2012 14.43 BST
The year 2012 ought to be a big one for sustainable investment. Calls for a more responsible approach to capitalism are growing, along with the sense that a more sophisticated understanding of investment risk – one which takes longer-term sustainability issues into account – is urgently required. The financial crisis and big failings at big names such as BP, Telco, News Corporation and Olympus have highlighted the importance of companies having business strategies that are sustainable over both the short and the long-term.
There is a growing need to ‘do more with less’ in the context of population growth, climate change and resource availability, particularly with regards to pollution and the consumption of energy and water resources. Integrating environmental, social and governance (ESG) considerations into financial decisions is critical in supporting efforts to tackle the pressing issues of climate change, population growth, food security and human rights.
Such an ambitious task requires a concerted response and a number of investor-led initiatives exist to encourage the switch to a greener economy for the Rio+20 conference.
Twenty years ago, the first Earth Summit highlighted the importance of the natural environment and its crucial role in sustaining life on earth. Twenty years later, investors are being urged to sign the ‘Natural Capital Declaration’ – a statement by the financial sector on its commitment to work towards integrating natural capital criteria into financial products and services.
The Natural Capital Declaration is calling on governments to develop the regulatory frameworks needed to stimulate businesses to integrate, value and account for natural capital in their business operations by means of disclosure, reporting and fiscal measures. The declaration is open to signature by CEOs of willing financial institutions and is intended to get top-level buy-in by banks, institutional investors and asset managers. It will be launched at Rio+20.
Aviva has convened a Corporate Sustainability Reporting Coalition (CSRC) of more than forty global institutions, including institutional investors managing in excess of $1.6tn, to call for improved reporting on Environmental, Social and Governance (ESG) risks at Rio+20. Markets are driven by information and if the information they receive is short term and thin, then these characteristics will define global financial markets. The coalition is therefore asking Earth Summit delegates to commit to develop a policy framework on Corporate Sustainability reporting.
Ideally, the Rio summit will result in an international commitment to develop national regulations which mandate the integration of material ESG issues into annual reports and accounts and which provide effective mechanisms for investors to hold companies to account on the quality of their ESG disclosures, including, for instance, through an advisory vote at a company’s annual general meeting.
Stock exchanges also have a unique role to play in facilitating improvements in corporate sustainability reporting and performance. The Sustainable Stock Exchanges initiative has been urging all stock market listing authorities to make it a listing requirement that companies consider how responsible and sustainable their business model is. It subsequently requests companies put a forward-looking sustainability strategy to the vote at their AGM.
So far, only a few a stock exchanges, such as those in South Africa, Singapore and Malaysia, have made progress. Elsewhere, there has yet to be a serious commitment to sustainability by, for example, integrating it into the guidance that they issue to companies or their listing rules.
At EIRIS, we are working with asset managers, asset owners, and stock exchanges around the world to increase the uptake of responsible investment. Sustainability encompasses a very broad range of ESG issues and it is vital that investors consider each of these – and not just focus on environmental issues – when assessing corporate performance. We have recently developed a system of sustainability ratings that enable investors to understand and assess the sustainability performance of companies.
In the run up to Rio+20 we have applied these sustainability ratings to 2,063 companies worldwide to see where they have got to in tackling the various sustainability challenges they face. Our report ‘On track for Rio+20? How are global companies responding to sustainability?’ finds encouraging signs that companies are making sustainability a significant part of their plans and strategies and acknowledging its importance, not only in terms of acting as good ‘corporate citizens’, but also in terms of ensuring their own long-term success.
However, a significant proportion of companies demonstrate only limited progress and big brands like Google and Apple are left behind on sustainability – along with other leading consumer names. Significant differences in sustainability performance also exist at the national level with UK and continental European companies outstripping their US and Asian counterparts. This underlines the need for commitments to tackle sustainability which are agreed and applied at the global level.
If the UN conference on sustainable development is to be successful in promoting the shift to a greener and fairer economy, both companies and their investors must be fully engaged in the sustainability debate. Rio+20 offers an important opportunity to advance the concerted action needed by financial institutions, business and governments alike to support the transition to a more long-term, sustainable and resilient economy.
Mark Robertson is head of communications at EIRIS and editor of www.yourethicalmoney.org