RiskMetrics Group today announced its sixth annual Global ESG 100. The Global ESG 100 companies are selected from a pool of 2,000 firms in more than 50 countries for their effective management of environmental, social and governance (ESG) risks and opportunities.

This year’s list welcomed 35 companies, 20 of which have never been listed, including Sharp Corporation, which has strengthened its environmental performance and ramped up solar cell production. Other newcomers included Safeway Inc., Discovery Communications Inc., Abertis Infraestructuras, Danske Bank A/S, and Osaka Gas Company.

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Most comments on the January 21 US Supreme Court decision in Citizens United v. Federal Election Commission (1) have focused on the effects of direct contributions by corporations to candidates. Are such contributions invitations to corruption, or exercises of protected speech by persons associated in corporations?

But for those concerned about corporate governance or corporate accountability in any of its forms, Citizens United has a context and implications that go well beyond elections and freedom of speech. These challenge fundamentally the notion of corporate social responsibility (CSR) and socially responsible investing (SRI).

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In the aftermath of the global financial crisis, many investors have grown concerned about standards of corporate governance. In fall of 2009, the European Commission released a study of corporate governance monitoring and enforcement practices in its member states. The study was undertaken by RiskMetrics Group in collaboration with BusinessEurope, ecoDA and their affiliates, and Landwell & Associates and their affiliates.

In most EU states, national governance codes set rules with which corporations must comply, or else explain why they have not complied. The RiskMetrics study found support for “comply-or-explain” regimes, but also found “some deficiencies,” including “unsatisfactory level and quantity of information on deviations by companies and a low level of shareholder monitoring.”

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In a report released January 6, shareholder coalition Ceres found that many asset managers don’t account for risks associated with climate change. Ceres surveyed 84 managers who are collectively responsible for $8.6 trillion in assets. 44% don’t believe that climate risk is financially material; more tellingly, as Barry B. Burr notes in Pension & Investments, 71% only consider climate risk when they’re marketing a “green” fund.

Spotting Material Risks beyond this Quarter

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This week, world leaders meet in Copenhagen to coordinate their efforts to address global climate change. As summed up by a RiskMetrics fact sheet on the event, the summit’s daunting goal is to set fair, achievable emissions reduction targets for both developed and developing nations.

The Financial Times’ Martin Wolf has succinctly stated why this will be so difficult:

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[Ed. Note: In preparation for the Copenhagen summit, the KLD Blog will present some perspectives on global climate policy. The following analysis of Australia’s rejection of an emissions-credit trading scheme comes from RiskMetrics analyst Mark Barraclough. Mark is based in Sydney and researches Australian firms, with a focus on the energy and extractives sectors.

As the US and other developed-world democracies debate their own “cap and trade” schemes, the case of Australia’s Carbon Pollution Reduction Scheme (CPRS) may prove instructive.]

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The final version of the Walker Report on corporate governance of UK banks and financial institutions was published on Nov. 26. The Prime Minister requested the report, which was issued by the Treasury. Sir David Walker chaired the report team. He is a prominent City banker who has had stints at Lloyd’s and Morgan Stanley.

The Report includes, among its recommendations (no. 17, p. 17), one that would require fund managers to adopt the Code on the Responsibilities of Institutional Investors announced by the Institutional Shareholders Committee (ISC) on Nov. 16. The Code, which Walker suggests be renamed the “Stewardship Code,” would require, among other things, that managers commit to engagement or explain why they didn’t.

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Investment & Pensions Europe’s Nina Röhrbein has presented some highlights from last week’s TBLI conference in Amsterdam. She quotes RiskMetrics Group’s Ran Fuchs, who asked why, historically, environmental, social and governance (ESG) research has primarily focused on equities, rather than fixed-income assets.

Mr. Fuchs’ question is about investment horizon, as ESG investment is long-term investment. In considering extra-financial metrics of corporate value, ESG investors act on their skepticism about short-term indicators, like share prices or quarterly returns. As ESG research can uncover longer-term risks and opportunities, Mr. Fuchs believes, its practitioners should apply its lessons to assets with longer time horizons.

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Last month, “The Economics and Politics of Corporate Social Performance” won the 2009 Moskowitz Prize. The Haas School of Business at UC-Berkeley and the Social Investment Forum (SIF) award the annual Prize to research relevant to socially responsible investing (SRI).

Prize-winning Stanford Professor David P. Baron and his team found that the “social pressure market,” through its interplay with the markets for products and equities, can reward companies for their corporate social responsibility (CSR) practices. In doing so, Baron confronts a canard that the SRI sector has disputed since its inception: “The Social Responsibility of Business is to Increase its Profits.”

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This week, Congress and the Obama Administration are discussing the future of American energy policy. The outcome of these efforts is unknown, but forward-thinking investors already expect big changes in the energy sector. The markets’ preparation for a less-polluting future includes the October announcement that First Solar, a solar-power technology firm, will soon join the benchmark Standard & Poor’s 500 index.

Investors expect a bright future for First Solar, a FTSE KLD Index constituent since 2007, partly because they assume that governments will eventually tax carbon emissions. If the carbon output of producers and consumers is taxed, then the relative cost-efficiency of solar and other renewable energy sources will increase.

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