are labour relations an investor issue? · source: 2005 fearless forecast, ©2005 mercer human...
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Are labourrelations an investor issue?
BC Federation of LabourPension Forum
December 1, 2005
Robert WalkerVice President, Sustainability
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Are labour relations an investor issue?
Yes…
…for “socially responsible investors”…
…and maybe, in future, for the “mainstream”
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Order of Presentation
Socially responsible investors
“Legitimacy explosion”
Sustainable Investing Program
What would you do? Labour relations and investor action
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Socially responsible investors (SRI)
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Socially responsible investment (SRI) …
is the integration of environmental, social and governance (ESG) factors into the investment process
has ancient roots in faith-based investors’refusal to invest in specific industries
has developed sophisticated methodologies to measure ESG performance
Increasingly makes use of the rights of share-ownership to encourage improved ESG performance
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SRI around the world
Sources: SIF 2003, UK Social Investment Forum, Assirt , SIO 2004
US UK
AustraliaCanada
$2.16 trillion USD11.3% of market
$403 billion USD11% of market
$14.3 billion USD3.2% of market
$65.5 billion CDN3.5% of market
$15 billion retail
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Labour standards and SRI
1. Tobacco $124 billion2. Alcohol $94.3 billion3. Labour relations $31.1 billion4. Environment $28.9 billion5. Gambling $28.8 billion
• Source: Social Investment Forum Trends Report, 2003; www.socialinvest.org
• Total SRI mutual funds assets: $151 billion
• All figures in US dollars
Most Popular SRI Mutual Fund Screens
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Evaluation methodologies include
Health and safety management systems
Health and safety performance numbers
Absenteeism, turnover, training
History of labour relations
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Use of ILO codes and conventions
ILO Code of Practice on Recording and Notification of Occupational Accidents and Diseases
ILO Guidelines for Occupational Health Management Systems
ILO Fundamental Principles and Rights at Work
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The Legitimacy Explosion
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It came…from Europe…
July 2000 – UK Pensions Disclosure Regulation: “the extent (if at all) to which social, environmental or ethical considerations are taken into account in the selection, retention and realisation of investments”
- Belgium, France, Germany, Australia have followed
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…fund managers
Mercer Investment Consulting
Recent Fearless Forecast surveyed 220+ investment managers worldwide and asked them to predict in which time frame active ownership, screening, and the integration ESG analysis “will become a common component of mainstream investing?”
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…fund managers
Positive or negative screening for social and/orenvironmental factors
26%
35%
10%
29% Over next 1-2 years
Over next 3-5 years
Over next 6-10 years
Never
Source: 2005 Fearless Forecast , ©2005 Mercer Human Resource Consulting LLC and Mercer Investment Consulting, Inc.
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…fund managers
Mercer Investment Consulting has begun to evaluate fund managers on the basis of how well they incorporate ESG factors into investment analysis, including proxy votes and engagement procedures
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…analysts
Enhanced Analytics Initiative– Consortium of asset managers
– Believe that ESG factors are important value drivers (“extra-financials,” “intangibles”)
– 5% of research budgets goes to broker research houses to develop ESG analytics
Winners announced June 2005– Deutsche Bank, Morgan Stanley, Goldman Sachs,
West LB, DrKW, UBS, HSBC
www.enhanced-analytics.com
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…analysts
“The Materiality of ESG Issues to Equity Pricing”– “Environmental, social, and governance issues
affect long term shareholder value. In some cases those effects are profound.”
– “The majority of analysts noted difficulties in comparative analysis due to the range of reporting practices…”
UNEP FI, 11 Sector Studies by Brokerage House Analysts
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…fiduciary duty
Freshfields, Bruckhaus, Deringer:
"...integrating ESG considerations into an investment analysis so as to more reliably predict financial performance is clearly permissible and is arguably required in all jurisdictions…”
“A Legal Framework for the Integration of ESG Issues into Institutional Investment”, October 2005
www.unepfi.org/fileadmin/documents/freshfields_legal_resp_20051123.pdf
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…Cowan vs Scargill
“… has been distorted by commentators over time to support the view that it is unlawful for pension fund trustees to do anything but seek to maximise profits for their beneficiaries.”
“…the case’s practical relevance today is questionable.”
“Fiduciary duties evolve over time according to changes in social norms…”
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Key distinction
Fiduciary duty owed to the wallet?
or
Fiduciary duty owed to the whole person?
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Sustainable Investing Program
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Our Core Values
Respect for the Environment
Respect for Stakeholders
Respect for Human Rights
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Corporate Sustainability Scorecard
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Overview
Step 1 Step 3Step 2 Step 4
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Step 3: How we categorize companies
Scorecard grades fall into five categories:
We work to improve a company’s grade
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Scorecard tells us …
Which companies we can invest in
Which companies we will exclude
Which companies we engage to make them better corporate citizens
Corporate Sustainability Scorecard
Shareholder Action Program
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Shareholder Action Program
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Shareholder Action
Use the rights of share-ownership to engage management and directors
Enter into structured dialogue
Alert companies to ESG challenges and present solutions
Ensure that companies maximize long term value creation
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2006 Focus List Themes
Seven themes1. Climate Change
2. Biodiversity
3. Environmental Justice
4. Food Safety and GMOs
5. Promotion & Protection of Human Rights
6. The War on AIDS
7. Executive Compensation & Sustainability
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Identifying Themes
• Canadian values
• Sustainability expert opinion
• Materiality
• Partnership opportunities
• Scorecard results
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Shareholder Action Program: Overview
Objectives:
•Highlight concerns
•Improve policy
•Action plans
•Improve performance
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Promotion & Protection of Human Rights
Objective
Establish a human rights policy and supporting management system
Companies
Alcan Barrick Gold
Canadian Natural Resources
Falconbridge Husky Energy
Power Corp Wal-Mart
Objective
Adopt & disclose supplier code of conduct, compliance mechanisms, audit
Companies
Dell Intel
BCE IBM
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The War on AIDS
Objective
Adoption of formal HIV/AIDS policies and program
Companies
Barrick Gold
Canadian Natural Resources
Falconbridge Potash
Objective
Create sustainable, affordable access to HIV/AIDS medications in the developing world
Companies
Eli Lilly Novartis Pfizer
GlaxoSmithKline Roche
Johnson & Johnson
Schering-Plough
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Executive Compensation & Sustainability
Objective
Adopt sustainability criteria as part of executive compensation packages
Companies
Broadcast Campaign to TSX/S&P Composite
Time Warner
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What would you do?
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Domestic labour issues
Telus
Letter to Board of Directors asking for terms of reference for human resources committee to be strengthened
Report to shareholders on efforts to repair relations with the union
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Domestic labour issues
Wal-Mart
Sustainability resolution
Supply chain compliance dialogue
National Contact Point review
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