UNPRI engagement starts to change corporate behaviour

Investment Europe
By Caroline Allen

A three-year engagement by signatories to the United Nations Principles for Responsible Investment (UN PRI) has improved transparency and disclosure of anti-corruption strategies, policies and management systems among several global companies.

The “engagement” was undertaken by a coalition of 21 investor signatories representing $1.7 trn in assets who believe that environmental, social and corporate governance (ESG) factors affect the long-term performance of investment portfolios. [EXPAND Read more]

They approached 21 companies across 14 countries in March 2010 to encourage them to demonstrate appropriate anti‐corruption controls.

The signatories group includes the California State Teachers’ Retirement System (CalSTRS), F&C Asset Management, Henderson Global Investors and Hermes Equity Ownership Services.

Three quarters of the companies targeted have “significantly improved” their transparency as a result of the interaction, the group claimed. By early 2013, 16 companies improved their performance against a set of indicators, and 10 improved their score four-fold. The leading company improved its score six-fold.

The engagement set to encourage reporting in line with international reporting frameworks, such as the International Corporate Governance Network’s Statement and Guidance on Anti-Corruption Practices and the UN Global Compact’s Reporting Guidance on the 10th Principle Against Corruption.

Companies were asked to improve disclosure of how they managed bribery and corruption risks. Poor disclosure is often a sign both of companies with cultures where corruption can occur, and of poor risk management, the group said.

A methodology developed by Transparency International, called Transparency in Reporting on Anti-Corruption (TRAC), was used to assess companies against 50 indicators relating to their anti-corruption strategy, policy and management systems.

Tim Goodman, associate director at Hermes Equity Ownership Services, commented: “We have seen in recent high profile cases, even if corruption is not prosecuted, the huge reputational and financial damage it can cause to the companies engaging in it. More than that, it siphons value to the corrupt, inhibits fair competition and impedes economic development to the detriment not only of shareholders’ portfolios but of companies’ other stakeholders and wider society.”

Christina Hillesöy, chairwoman of the Ethical Council, a collaboration between the First, Second, Third and Fourth Swedish National Pension Funds, said anti-corruption has been a priority action area for many years since it “undermines the legitimacy and sustainability of economic systems and provides huge risks to the companies we invest in”.

Ann Byrne, CEO of the Australian Council for Superannuation Investors, noted long-term investors have a responsibility to address the impact that bribery and corruption has on investment returns, market volatility and uncertainty in company performance.

“Companies involved in allegations of corruption and bribery are often characterised by poor corporate governance processes, the failure of internal processes to protect the integrity of stakeholders and an inability to successfully implement and monitor company codes of conduct.”

The findings were released as another group of 12 investors, collaborating through the PRI, start to engage with companies on anti-corruption issues. They will target up to 50 firms across a wider range of sectors and countries. [/EXPAND]