Two recent articles point to some interesting developments - from some unlikely sources - regarding corporate social responsibility (CSR) and regulation.

In the UK, a report commissioned by Tomorrow’s Company concluded that companies should push for CSR laws. Ethical Performance noted in July that the report says that “while voluntary initiatives are the best way forward, ‘they subsequently need to be translated into national regulation that is then rigorously and uniformly enforced’.” Ethical Performance goes on to emphasize that most of the ten people on the panel that undertook the inquiry were from the business community, not from non-governmental organizations (NGOs).

Also this month, Indonesia passed a law making CSR - broadly understood as the implementation of “environmental and social responsibility programs” - mandatory for companies, apparently becoming the first country to do so. Erin Lyon wrote in CSR Asia Weekly that business opposition to an earlier draft had led to a narrowing of the bill to cover only “companies with an impact on natural resources”.

(read more…)

I was part of a panel discussion that addressed strategies for responsible international investing at last week’s Green Mountain Summit on Investor Responsibility. Since the focus of the panel was on the challenges and opportunities of both the research and product side of the equation, I thought that an informal overview of current retail mutual fund offerings available to U.S. investors would be a valuable framing exercise.

As sources for the overview I used the U.S. Social Investment Forum (SIF) directory, Morningstar’s socially responsible investing fund screener and the web sites of fund sponsors. I excluded alternate share classes when they existed and focused on funds available to U.S. investors that had global or international exposures, regardless of whether or not the exposure was explicitly part of the funds’ investment objective.

The results of this exercise are summarized below. I found just 14 funds for responsible investors that had global/international exposure, 10 of which had explicit mandates for such exposure. I included three funds that are not branded as socially responsible investing (SRI) funds, but would appeal to responsible investors because of their emphasis on environmental factors.

(read more…)

‘Precatory proposals’: this phrase from Purgatory has quickly entered the lexicon of those defending access to non-binding shareholder resolutions. Its users should wash their spell checkers out with soap.

‘Precatory proposals’, as I wrote a few weeks ago, is a phrase apparently invented by Leo E. Strine, Jr. Strine is a lecturer at Harvard Law School and a judge in Delaware, and he is no friend of non-binding resolutions. He’d like to see them abolished.

So, those who’ve adopted the phrase – which sounds very legal, very precise – should know what ‘precatory’ means and implies.

(read more…)

Traditional financial management curicula establish that a corporation’s primary objective is to maximize the value of the firm and, in turn, maximize shareholders’ return. Advocacy groups and the socially responsible investing (SRI) community have nothing against companies that strive to increase earnings — so long as profits aren’t maximized at the expense of local communities, employees, and the environment.

What’s been difficult, though, is making the link between environmental, social and governance (ESG) issues and financial performance. Over the years, dozens of studies have reported on how well corporate citizens perform from a financial standpoint.

My financial textbook, as well as some SRI skeptics, argues that companies that spend resources pursuing “extra-financial” objectives are at an inherent financial disadvantage to their competitors that instead devote those resources to seeking lower cost production, developing new products, and maximizing sales.

(read more…)

Why should companies engage KLD? What are KLD’s boundaries in talking with the companies we research about environmental, social and governance (ESG) issues? These questions – more than any others – come up when we talk to companies. They have come increasingly from the media and the public.

KLD’s position on engaging with companies has changed very little since its founding in 1988. We began by being clear about:

• whose interests we represented – social investors and their fiduciaries and agents;

(read more…)

Prior to its merger with Chevron in 2001, Texaco was involved in controversial legal proceedings related to its activities in Ecuador between 1969 and 1990. In May 2003, attorneys representing 30,000 indigenous Ecuadorians filed suit against Chevron seeking to collect $1 billion in damages for oil pollution in Ecuadorian forests and rivers 30 years before. The case went to trial in an Ecuadorian court in October 2003, and was pending as of March 2006.

Attorneys for Ecuadorian indigenous peoples appealed a May 2001 decision by a federal judge in New York to dismiss attempts to sue Texaco in U.S. courts. The U.S. courts determined that Ecuador was the appropriate jurisdiction. In August 2002, a U.S. federal appeals court upheld the May 2001 dismissal. Nevertheless, the appeals court ruling allowed that a verdict against the company reached in an Ecuadorian court would be enforced in the U.S. Legal action was originally brought in November 1993 by representatives of Ecuadorian indigenous communities and settlers from eastern Ecuador. The plaintiffs included 100 residents of Ecuador and nearby Peru.

The suit alleged that between 1969 and 1990 the company was responsible for practicing extensive deforestation, depriving local communities of land, contaminating rivers with oil spills and production waste, and polluting the atmosphere by burning off gas. In October 1998, a federal appeals court reinstated the suit against Texaco in a New York federal court after it had been dismissed a first time.

(read more…)

Herewith from Fox News via London’s Sunday Telegraph the latest example of the exposure of inconsistences – at least in the eye of the beholder – between a foundation’s mission and its investments:

SHE PROVIDED the finale to yesterday’s Live Earth concerts, even writing a special song to mark the worldwide musical event. But instead of being lionised, Madonna found herself accused of hypocrisy after allegations that she has financial links to some of the world’s biggest polluters.

The Ray of Light Foundation, a charitable fund established by the star to support her favourite causes and named after one of her biggest hits, has $4.2 million … of shares in a string of companies including Alcoa, the American aluminium giant, the Ford Motor Company and Weyerhaeuser, an international forest products company. All have been criticised by environmentalists.

(read more…)

While wind power has become the most economically competitive renewable energy source globally, future US growth faces a hurdle in the form of a supply chain bottleneck for turbines.

Market share for turbines has become increasingly consolidated in the hands of a few producers, putting pressure on domestic wind developers and creating an opportunity for more vertically integrated foreign utilities to acquire US assets. Throw in the fickle production tax credit for wind power with its two-year lifespan, and the US outlook for more wind power does indeed look shaky.

On the positive side, more and more states are increasing their renewable portfolio standards, the price of oil continues to rise, demand for energy is expected to grow and energy independence from foreign producers is still an attractive proposition to law makers.

(read more…)

Coca-Cola CEO E. Neville Isdell has urged ‘more companies to get involved’ in protecting the environment. He spoke to a crowd of his peers at a meeting of the UN’s Global Compact in Geneva on July 7.

The Reuters report on his speech described his fervor with phrases such as ‘rattling the pulpit’ and ‘railing against his fellow executives to stand up and do more to protect the environment — particularly drinkable water’.

Exciting – and significant – as Isdell’s speech is, the Reuters story also captured the dilemma for corporations and their stakeholders in setting expectations – and limits – for what does not directly affect the corporate bottom line. Here is an excerpt from the article:

(read more…)

I just skimmed this report in preparation for the OnValues/Who Cares Wins conference I’m attending this week, which is focusing on emerging market investment.

The report is from Association for Sustainable & Responsible Investment in Asia (ASrIA), and it’s on the lack of disclosure of environmental, social and governance (ESG) factors by Asian companies listing on the Hong Kong Stock Exchange. In addition to being a good overview, the report gives some idea of the proxy ESG indicators one can use when looking at companies that disclose very little information, such as staff turnover, expenditure on pollution control equipment, etc.