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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The Madoff Madness and the Banking Crisis: At one extreme, trustees must dodge sociopathic fraudsters; on the other, they must avoid the hubris of “the smartest guys in the room.”

Modern Portfolio Theory and the legal thinking it’s influenced address the problem by means of risk analysis and diversification. This approach has limits, as Investments & Pensions Europe reported recently: “Dutch pension funds have lost €166m to the Ponzi scheme run by Bernard Madoff, Wouter Bos, the Dutch finance minister has claimed.”

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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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Ceres, the Boston-based activist investor group, has joined governments, trade organizations and global investors in calling for automakers to measure and disclose their products’ greenhouse gas (GHG) output. Autos account for 10% of global carbon emissions, according to International Energy Agency figures cited by Ceres. Despite this, “it is extremely difficult for investors to assess properly the risks and opportunities posed by climate change policy to individual companies,” according to Ceres’ new report.

Shareholder and environmental advocacy groups have long called for better transparency and more disclosure of environmental, social, and governance (ESG) performance. Now state and federal governments are poised to require automakers and other industries to report their GHG emissions. Environmental Leader reports that a new EPA rule will affect 13,000 industrial facilities, including chemical plants, utilities and the paper industry, as well as automakers. According to the EPA, these sources account for as much as 90 percent of greenhouse gases emitted nationwide.

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Last week, President Obama and Congress committed US taxpayers to a $787 billion economic stimulus program. Alan Greenspan has told the Financial Times of his qualified support for bank nationalizations, and this week, the US “signaled that it was willing to raise its equity stake” in Citigroup. A giant Swiss bank has admitted to “conspiring to defraud” the IRS and is turning some customer data over to Federal regulators. A recent Newsweek cover even declared, “We Are All Socialists Now.”

Before the fall of 2008, did anyone think it necessary for government to expand its economic role so dramatically? Some observers did, and one – Nobel Prize winning economist Joseph Stiglitz – believes that socially responsible investment (SRI), in concert with better regulation and corporate governance – is essential to broadly shared, sustainable prosperity.

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On November 26th, the Secretariat of the United Nations Principles for Responsible Investment (PRI) held a webinar on its Ethical Trading Initiative. The PRI call on investors to incorporate environmental, social and governance (ESG) factors into their investment practices, and to work together for better reporting and disclosure of ESG performance. (KLD is a charter signatory of the PRI. For more information, see the About PRI page at KLD.com.)

The Ethical Trading Initiative is a PRI-led coalition that works for better labor and environmental practices throughout the global supply chain. The Initiative is a recognition that investors alone cannot raise global ESG standards. Real progress demands that manufacturers, distributors and retailers commit to industrywide improvements. Shareholder activists play a vital role in this effort, which requires coordination on a massive global scale.

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