Financial Times: Companies fail UN Global Compact

On February 14, the Financial Times reported that an international coalition of investors sent letters to 86 major Global Compact participants, urging them to honor the Compact's reporting requirements. Each of these 86 laggard companies have failed to produce an annual Communication on Progress (CoP) on the implementation of the ten principles of the Compact. The investors in the international coalition were all signatories to the UN Principles for Responsible Investment (UNPRI). The coalition included funds such as Aviva Investors, Boston Common, and Nordea Investment Funds.

In the article in the Financial Times, Steve Waygood, head of research and engagement at Aviva Investors, said: "There are a lot of companies that have made very public commitments to report progress with the Compact. If they don't follow through with this, that hasn't reduced or mitigated risk, it has actually raised it. It raises the question as to whether it is a proxy for bad management." According to the article, Mr. Waygood "suggested some companies might simply be engaging in greenwashing - paying lip service to environmental issues - or bluewashing - signing up to UN initiatives merely to appear aligned with the organization, which has a blue logo."

It was the third time investors teamed up to send a reminder to lax Global Compact participants. In 2008, the engagement resulted in 33 per cent of laggard companies subsequently submitting their progress reports, in 2009 positive responses increased to 47.6 per cent (50 out of 105 companies), including from firms such as BHP Billiton, Severn Trent, The Gap and Louis Vuitton Moët Hennessy.

Unfortunately, the coalition of investors did not publish a list with the names of the 86 companies that were included in this year's campaign.

"Seriousness" of firms' commitment to the UN Principles for Responsible Investment questioned

In an article published yesterday on Ignites, Beagan Wilcox Volz writes that MFS has signed on to the UN Principles for Responsible Investment (UNPRI). The principles provide "a menu of possible actions for incorporating environmental, social and governance (ESG) issues into mainstream investment decision-making and ownership practices". The initiative was set up in 2005 by the United Nations Environment Programme Finance Initiative (UNEP FI) and the UN Global Compact.

According to Ms. Wilcox Volz, MFS said that its approach to managing money and interacting with clients will not change. Becoming a signatory is "an affirmation of what we have already been doing rather than a change in approach going forward," said a spokesman for the firm.

Other US asset manager signatories that explicitly bill themselves as practicing socially responsible investing (SRI) have signed on to the principles, such as TIAA-Cref, Calvert, Domini Social Investments and Pax World. But other large U.S. asset managers - which, like MFS, do not call themselves SRI shops - have also signed on, including BlackRock, JPMorgan and Russell Investments. 

The activist group Investors Against Genocide, interviewed by Ms. Wilcox Volz, questions "the seriousness" of some firms' commitment to UNPRI because of their continued investments in oil companies that are linked to the genocide in Darfur.

The MFS Emerging Markets Debt Fund, for example, held $5.8 million in Petronas as of the end of October, according to a regulatory filing. It is not clear whether the fund still holds those investments.

The activists say companies such as Malaysian Petronas and Chinese PetroChina have ties to the government of Sudan, which is accused of committing genocide and using its oil revenues to fund purchases of arms. Investors Against Genocide has waged a very public campaign to pressure fund firms to divest from these companies.

When asked by Ignite if divestment from companies linked to the genocide in Darfur would be part of becoming a signatory to UNPRI, the MFS spokesman responded via e-mail, "No. The aim of the Principles is to help investors integrate consideration of ESG issues into investment decision making and ownership practices."

The MFS spokesman further stated, "Our priority continues to be fiduciary duty to our clients and helping them achieve their investment objectives. ESG factors, to the extent material to a company, should be considered in assessing value… Our analyst team has considered ESG factors for some time."

BlackRock, another signatory to the principles, is a holder of PetroChina through its iShares subsidiary, says Eric Cohen, chairman of Investors Against Genocide.

The iShares MSCI Emerging Markets Index Fund held $266 million in PetroChina shares as of Nov. 30; the iShares FTSE/Xinhua China 25 Index fund held $363 million in PetroChina shares as of the end of October, according to regulatory filings.

"[O]ur fiduciary responsibility is to our funds' shareholders. This means that for our passively managed funds, we are obligated to track the funds' underlying target indices," a spokeswoman for the firm writes in an e-mail response to questions from Ignite.

She notes the firm's announcement of its development of a "genocide-free" iShares fund last November, partly based on conversations with Investors Against Genocide. The firm offers iShares clients socially responsible investments, "and thus we provide clients choice when making their investment decisions," she adds.

BlackRock became a signatory to UNPRI in November 2008, according to Alex Popplewell, managing director and head of socially responsible investment at the firm.

BlackRock completed its acquisition of Barclays Global Investors and its iShares unit from Barclays in December. Barclays is not a signatory to the principles.

The rate at which firms are signing the principles has increased recently, says Elliot Frankal, communications manager with the UN. From August of last year through January, there were 120 new signatories. In the same period a year earlier, there were only 62, he says.

There are currently 689 signatories in total and 359 of them are investment managers, Frankal says. About 60 US asset managers have signed on, according to the UN.

Paul Hilton, director of sustainable investment business strategy at Calvert, says the principles are gaining popularity in the US, particularly among pension funds. But with the pension funds on board, asset managers also see the benefit of signing on, because they do a lot of the money management for those funds.

"When there's business to be had, it certainly makes sense for asset managers to show they can do this," Hilton says. "At the heart of [the principles] is the belief that in looking at these extra investment factors, you can come up with better investments."

Regarding the criticism of certain investment manager signatories by Investors Against Genocide, Hilton says the most important thing is for the UN to get firms to sign on to its principles. "If you set the bar too high right off the bat, it makes it very difficult to get folks involved. I think over time, the intention is for [the principles] to become more stringent."

The UN also tracks the degree to which signatories adhere to the principles and this serves as an "accountability mechanism" for the initiative, says the UN’s Frankal.

The 2009 "Report on Progress" found that 77 percent of the investment manager signatories engage in screening of investments. “While ethical considerations are at the forefront in determining screens, so are other issues more directly related to risk and return,” the report says.

There is no fee to become a signatory, but there is a suggested, voluntary fee of $10,000 to help the UN support the signatories and promote the principles, according to the UN’s website.

Source: Ignites (9/2/2010).

Global Compact Office sends 859 companies packing

Yesterday the Global Compact Office announced that 859 companies were removed (delisted) from the initiative's database of participants between 1 October 2009 and 1 January 2010. The total number of businesses removed for failure to meet the Global Compact's mandatory annual reporting requirement now stands at 1840. The high number of delistings in this relatively short period is due to a policy adjustment which led to the elimination of the "inactive" status in the Global Compact database. Companies are now delisted after one year of being marked as "non-communicating".

Under the Compact's policies, participating businesses must issue an annual progress report (also known as Communication on Progress - COP) on their implementation of the initiative's ten principles. Consecutive failure to submit a COP to the Global Compact's public database leads to the delisting. The delisting policy was first introduced in January 2008, as part of the Global Compact's integrity measures.
 

The list with delisted companies published by the Global Compact Office shows that the Compact continues to experience difficulties in Latin America. Over 200 Mexican companies were delisted. There are now 107 Mexican business participants in the Global Compact, of which 33 are "non-communicating". Global Compact Critics reported about the trouble in Mexico in November 2009.

The Dominican Republic is another country where the local network of the Compact has failed to inform and motivate its members. According to the list issued by the Global Compact Office, over 90 companies in the Dominican Republic were delisted. Only four active companies remain in this country. The Colombian local network has performed slightly better. Over 30 percent of its business participants were dismissed.

While delisted companies are removed entirely from the Global Compact’s database, the initiative does keep the door open for those companies willing to return. To rejoin the Global Compact, companies must send a new commitment signed by the chief executive officer to UN Secretary-General Ban Ki-moon and submit a COP to the Global Compact database.

Source: Global Compact Office (2/2/2010).

© Photo by the Alumni Project.

Global Compact participant wins Survival Greenwashing Award 2010

Yaguarete Porá, a Global Compact participant from Brazil, has won Survival’s Greenwashing Award 2010. Survival is an international organization that supports tribal peoples worldwide.

Yaguarete has won the award for "dressing up the wholesale destruction of a huge area of the Indians' forest as a noble gesture for conservation", says Survival's director Stephen Corry.

The company owns 78,549 hectares of forest that is part of the Ayoreo-Totobiegosode tribe's ancestral territory. After satellite photos were published around the world revealing that it has destroyed thousands of hectares of the tribe's forest, the company issued a press release announcing it intends to create a "nature reserve"on its land. 

But plans submitted by Yaguarete to Paraguay’s Environment Ministry reveal that the amount of "continuous forest" in the reserve will be just 16,784 hectares out of the 78,549 hectares total, and the company in fact plans to convert around two thirds of the land to cattle ranching.

Some of the Totobiegosode have already been contacted and vehemently condemned the plans for the 'reserve', pointing out that it violates their rights under both Paraguayan and international law. The contacted Totobiegosode have been claiming legal title to this land since 1993, but most of it is still in private hands.

The Totobiegosode are the only uncontacted Indians in the world having their territory destroyed for beef production.

Survival director, Stephen Corry, said that "This is textbook 'greenwashing': bulldoze the forest and then 'preserve' a bit of it for PR purposes. The public won't fall for it. Yaguarete should stop playing games and pull out of the Totobiegosode's territory once and for all."

This video outlines Yaguarete's plans:



Source: Survival International (20/1/2010).