Blog : BOARD TALK
|Posted on April 27, 2013 at 9:30 AM|
The global body of investors behind Principles for Responsible Investment has been busy.
Led by F&C Asset Management and Hermes Equity Ownership Services, PRI collectively manages more than $1.7 trillion in assets. It began engaging with 21 companies across 14 countries in March 2010 to encourage them to demonstrate they had appropriate anti-corruption controls.
But there is a hint of good news, which is heartening. Three quarters of the companies targeted in this investor engagement by PRI have apparently "significantly improved their transparency in this area."
"The results of this engagement will enable investors to better assess and manage their exposure to the financial, operational and reputational impacts of corruption risks in their portfolios" says PRI.
An important element of its work, it says, was to encourage reporting in line with international reporting frameworks, such as the International Corporate Governance Network’s (ICGN's) Statement and Guidance on Anti-Corruption Practices and the UN Global Compact’s Reporting Guidance on the 10th Principle Against Corruption.
Companies were asked to improve their disclosure of how they managed bribery and corruption risks as well as tested on the efficacy of their risk management in this area.
Each of the 21 companies was selected due to its poor public disclosure of anti-corruption risk management and high levels of corruption risk because of the nature of their businesses. Such poor disclosure is often a sign both of companies with cultures where corruption can occur, and of poor risk management, says PRI.
It used a methodology developed by Transparency International, called Transparency in Reporting on Anti-Corruption (TRAC) to assess companies against fifty indicators relating to their anti-corruption strategy, policy and management systems.
By early 2013 - after a three year phase of 'engagement', sixteen companies have improved their performance against the indicators, with ten companies improving their score by four-fold, and the leading company improving its score by six-fold.
"We have seen in recent high profile cases, even if corruption is not prosecuted, the huge reputational and financial damage it can cause to the companies engaging in it. More than that it siphons value to the corrupt, inhibits fair competition and impedes economic development to the detriment not only of shareholders’ portfolios but of companies’ other stakeholders and wider society" says Tim Goodman, Associate Director at Hermes Equity Ownership Services“.
A group of 12 investors, collaborating through the PRI are now working to launch the next phase of engagement with companies on anti-corruption issues. They intend to target up to 50 firms across a wider range of sectors and countries to better understand their ability to manage and reduce corruption-related risks and theircapacity to improve practices and transparency.
If that isn't stewardship at its best, I'm not sure what is....
Useful information to help spread the word:
PRI signatories that participated in the engagement included: Australian Council of Superannuation Investors (ACSI), AP1 (First Swedish National Pension Fund), AP2 (Second Swedish National Pension Fund), AP3 (Third Swedish National Pension Fund), AP4 (Fourth Swedish National Pension Fund), APG Asset Management, BC Investment Management Corporation, Boston Common Asset Management, California State Teachers' Retirement System (CalSTRS), Ethos Foundation, F&C Asset Management, Henderson Global Investors, Hermes Equity Ownership Services, MN, New Zealand Superannuation Fund, Rathbone Brothers Plc, Robeco, Skandinaviska Enskilda Banken (SEB) AB, Sparinvest Group, Syntrus Achmea Asset Management, and Victorian Funds Management Corporation.
The 21 companies that were targeted by the engagement are domiciled in: Austria, Belgium, Brazil, China, France, Germany, Japan, Mexico, Russia, South Korea, Spain, Sweden, UK, USA.
They operate in the following sectors: Materials, Telecommunications Services, Capital Goods, Aerospace & Defence, Construction, Media, Utilities, Food Markets.