Social Funds recently published a two-part article on corporate responsibility for fighting human trafficking and forced labor, especially commercial sexual exploitation of children (CSEC). Reporter Robert Kropp writes that corporations have an important role to play in the prevention of child sex tourism, but American companies appear reluctant to act: of 623 global signatories of a Code of Conduct for Protection of Children from Sexual Exploitation in Travel and Tourism, only 5 are American.

The World Trade in People

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Last week, Responsible Investor reported that Adam Seitchik, former CIO of Trillium Asset Management, is joining London-based Auriel Capital Management. RI’s Hugh Wheelan wrote that in hiring Mr. Seitchik, Auriel “is joining a growing number of hedge funds building strategies in the responsible investment space.”

Why are absolute return managers becoming more interested in environmental, social and governance (ESG) analysis? According to Mr. Seitchik, the Principles for Responsible Investment (PRI) have spurred broader investor interest in ESG research. In a conversation on June 22, he discussed the impetus behind his move:

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As the Obama Administration seeks to overhaul financial regulation, a multi-trillion-dollar coalition of investors has argued that the government should require corporate disclosure of climate change-related risks. Climate Risk Disclosure in SEC Filings – a deceptively modest title – calls for replacing the current hodgepodge of voluntary disclosure with a federally mandated reporting regime.

Ceres, the Environmental Defense Fund, and other sponsors of this Corporate Library-produced study formally presented their findings to the Securities and Exchange Commission (SEC) in a June 12 letter.

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Executive pay practices have recently drawn scrutiny from both Congress and the Obama Administration. Last week, Nell Minow of The Corporate Library testified before the US Committee on Financial Services on “Compensation Structure and Systemic Risk.”

In her June 11 testimony, as in her previous work, Ms. Minow emphasized that boards of directors bear ultimate responsibility for corporate pay practices. While many sustainable/socially responsible investors (SRI) welcome “say-on-pay,” she spoke frankly about the limits of this and other tactical reforms:

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Few professors or pundits have worn the title of guru better than Peter Drucker. Here is an excerpt from his 1976 book, The Pension Fund Revolution, on the revolutionary General Motors Pension Plan of 1950:

“The union [the United Auto Workers] feared, with good reason as subsequent events have proven, that the pension fund would strengthen management and make the union members more dependent on it.

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In March 2009, KLD Consulting sought to identify which emerging-market nations were improving their environmental, social, and governance (ESG) disclosure. Through a review of Global Reporting Initiative (GRI) data, the lead researchers noted efforts by emerging-market companies to comply with GRI’s reporting guidelines.

Brazil, South Korea, South Africa, India, and Chile all made significant progress towards broader, more detailed ESG disclosure.

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The British journal Responsible Investor has published an interview with Gro Nystuen, chair of the Norwegian state investment fund’s Council of Ethics. Norway’s government is a leading advocate and practitioner of sustainable/socially responsible investing (SRI).

Ms. Nystuen speaks frankly about how the Norwegian state pension fund puts its good intentions into practice. “The Council consists of five persons who are all experts in the different areas covered by our guidelines,” she says. “This expertise means that we know what we are talking about. It is not a ‘prominent-persons-have-been-politicians’ kind of council, as it could easily have been.”

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The mining and refining of metal is an industry with ancient roots, and it remains essential to the global economy. Even supposedly “clean” industries like electronics depend on mining and smelting, as gold, tin and other metals are found in cell phones, computers and other ubiquitous consumer products.

Industrial mining can have a dramatic impact on the environment, and metals profits also help finance violent unrest in poor nations like the Democratic Republic of Congo (DRC). Developing nations such as Indonesia, Colombia, and the DRC bear the brunt of mining’s costs, yet downstream consumers – and investors – share responsibility for industry practices.

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As the world’s economy has become more deeply integrated, some investors have sought to hold companies responsible for labor practices throughout their global supply chain. Norges Bank Investment Management (NBIM), which manages pension funds for the government of Norway, released a report in March on corporate initiatives to fight exploitation of child labor. The Sector Compliance Report, which considers firms’ compliance with NBIM labor-practice guidelines, supports a “rights-based approach” to the protection of children.

Beyond Philanthropy

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Global financial regulatory reform is a priority at this week’s G-20 summit in London. What Bloomberg calls “an effort to rewrite the rules of capitalism” was called a “non-negotiable goal” by French President Nicolas Sarkozy and German Prime Minister Angela Merkel.

This is welcome news for investors represented by the Social Investment Forum (SIF), which has argued that regulatory reform is a necessary response to the global recession. “Systemic weakness after a generation of deregulation is a significant factor in the crisis,” said Damon Silvers, AFL-CIO Associate Counsel and vice chair of the Congressional Oversight Panel (COP).

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