The Rise of Responsible Investing — Be Careful What You Wish For!
A growing RI industry is bringing more scrutiny and the emergence of new standards. Here are a few that ESG Services is looking at now:
Organization for Economic Cooperation and Development (OECD) Responsible Business Conduct — Due Diligence Procedures for Institutional Investors. That's a mouthful. What it means is that investors need to put in place robust procedures for managing the environmental and social risks that the companies in their portfolios can impose on people and communities. Those that fail to do so may find themselves the target of a complaint from a growing number of watchdog organizations. That's what happened to the Government of Norway Pension Fund caught holding a company that was allegedly responsible for illegal forced resettlement of people in India. To avoid a similar fate, ESG Services is now implementing our due diligence procedures across the entire NEI fund complex.
Principles for Responsible Investment Assessment Process. The PRI now claims more than 1700 members with almost US $70 trillion in AUM. It is a gorilla in the world of RI. Signatories have long been required to report to the PRI how they're implementing the six PRI Principles: ESG incorporation, engagement, ESG disclosure, RI promotion, collaboration and reporting. Going forward, the PRI is raising its standards to flush out the free-riders and identify leaders. Historically, NEI has scored an 'A' but the gap is closing as newer members begin to improve. ESG Services will be tweaking our procedures to keep NEI at the top. The release of our RI policy this past summer will help us make the grade.
Taskforce on Climate-Related Financial Disclosures. The new kid on the block coming from the Financial Services Board chaired by Mark Carney. All companies will be expected to enhance disclosure of governance, strategy, risk management and targets for dealing with climate risk and the energy transition. Investment institutions will not escape scrutiny. ESG Services is voicing support for these disclosures from companies we invest in. To avoid living in a glass house, we'll have to think about how we can enhance our own disclosure in the 2017 CSR and RI Program report.