The PRI Secretariat, in consultation with signatories and the Clearinghouse Steering Committee, has developed a list of priority themes for in-depth collaborative engagements which the PRI will coordinate over 2012-2014. These themes, organised by environmental, social and governance (ESG) category, can be found below.
|Environment – managed by Olivia Watson|
Population growth, urbanisation and changing weather patterns are leading to increased water scarcity in many regions of the world, posing risks to companies in both the short and long term. This engagement will focus on improving management of water risks in companies’ direct operations and supply chains. The engagement will focus on companies in sectors that face considerable water risks, for example those in the food, beverages or textiles sector which are significant users of water and are often reliant on agricultural inputs from water-scarce regions. Dialogue with governments or multi stakeholder initiatives may be developed in parallel with company engagement. More information for signatories.
Fracking operations can cause significant environmental and social impacts – particularly on water resources, greenhouse gas emissions, and local communities. Bans and moratoriums on fracking in several regions around the world have demonstrated that companies can face major risks to their license to operate and future earnings where they do not adequately manage these impacts. This project will build on engagement and lessons learned from fracking development in the US, and will focus on improving practices in markets where fracking operations are now being evaluated or are under development, such as Europe, China, South America and South Africa. More information for signatories.
Emissions reduction targets
In view of increasing regulations on carbon emissions, rising energy costs and public concerns about climate change in many parts of the world, institutional investors are assessing how their portfolio companies are responding to climate risks. Companies that are not demonstrating progress toward making cost-effective carbon emissions reductions may face increased business and reputational risks in future. Through this engagement, a group of 18 investors has sought dialogues with 24 companies with significant greenhouse gas emissions that had not disclosed an emissions reduction target based on data from CDP’s Carbon Action initiative. 10 companies have since set a target, while several others have demonstrated understanding of investors’ concerns and made some progress. This engagement will be continued and expanded to additional companies over 2013.
Sustainable palm oil
The palm oil industry has faced significant challenges – including allegations of forest clearing and social injustice by plantation companies, and the low take-up of Certified Sustainable Palm Oil by palm oil purchasers. These difficulties have prevented the sector from adequately tackling its GHG emissions and its contribution to deforestation, and also pose reputational risks for palm oil producers and purchasers. A group of 25 global investors coordinated by the PRI Secretariat has formed a working group which aims to raise awareness of these issues, provide a unified investor voice in support of sustainable palm oil, and engage with companies in support of more sustainable practices. Over 2012-13 the group has engaged with significant global buyers of palm oil to encourage them to set a commitment and time bound plan for purchasing sustainable palm oil. More information for signatories.
|Social – managed by Erin Court|
Labour standards in the agricultural supply chain
Working conditions in agricultural supply chains have come under increased scrutiny following the attention received in the apparel and electronic sectors, owing in part to consumer pressure. Field versus factory working conditions are characterised by different ground rules, owing largely to the less formalised nature of agricultural employment – a characteristic which presents heightened social and long-term investment risks, such as child labour, lack of worker benefits, and health and safety issues. Potential food/agribusinesses to be targeted by this engagement include food and beverage retailers, importing agents and wholesalers, and packing units in the country of production. More information for signatories.
While the issue of labour standards in the supply chain and the management of contract employee risk have received significant attention over the past years – matched by a growing body of best practice with respect to policies, programmes and implementation – less attention has been devoted to how the management of direct employees can be material to company performance and shareholder value. However, recent empirical studies support a correlation between strong human capital practices, such as investment in employee training, and future shareholder return. This engagement will prioritise dialogue with workforce-intense sectors and consider issues related to employee retention and training, high-performance work systems, employee participation and ownership models, and employer-employee relations. More information for signatories.
Human rights in the extractive sector (begins 2014)
Starting in 2014, the PRI Secretariat will launch a collaborative engagement with the extractive industry focused on the implementation of Professor Ruggie’s Principles on Business and Human Rights and the UN Guiding Principles on Business and Human Rights. The engagement will likely identify priority business relationships to consider for good human rights practices (e.g. joint ventures). The UN Global Compact/PRI Guidance on Responsible Business in High-Risk and Conflict-Affected Areas will serve as a key resource for dialogue with and benchmarking of companies.
|Governance – managed by Athanasia Karananou|
Director nomination process
Investors play a key role in the election and oversight of boards of directors, and this is one of their greatest powers over corporate decision making. The director nomination process is the starting point and the most crucial aspect for the final composition of the board. This initiative will focus on engaging with companies and policymakers to seek more disclosure, and encourage changes to improve overall effectiveness of the director nomination process, in an effort to protect long term value. More information for signatories.
Bribery and corruption are incompatible with good corporate governance and harmful to the creation of value. Investors expect companies to have robust programmes to manage financial, operational and reputational risks linked to corruption in their firm and supply chains, especially as legal enforcement of bribery and corruption continues to build globally and companies are facing increasing potential regulatory liabilities. A coalition of investors will continue working on this issue and engaging with companies around the world that face bribery and corruption risks but do not communicate avoidance measures adequately, asking them to improve disclosure and establish strong anti‐corruption management systems. More information for signatories.
Integrating environmental, social and governance (ESG) issues into executive pay
Many companies around the world have started to include ESG criteria in executive incentive schemes. Considering the influence of ESG factors on corporate performance and reputation, this is an important factor in the creation and protection of long-term shareholder value. In June 2012, a group of PRI investors developed guidance to support dialogue between shareholders and investee companies on this topic. The guidance provided recommendations on how to identify appropriate ESG metrics, link them meaningfully to executive pay and provide sufficient disclosure to investors. The group has now embarked on the second phase of the project, engaging with companies in two sectors within four different markets to develop sector-specific supplements to the guidance. More information for signatories.
|Environmental, social and governance (ESG) disclosure – managed by Valeria Piani and Danielle Chesebrough|
Integrated Reporting: IIRC Pilot Programme Investor Network
The International Integrated Reporting Council (IIRC) Pilot Programme has an Investor Network, run in collaboration with the PRI Secretariat, and a Business Network. The Pilot Programme is the ‘innovation-hub’ of the IIRC where over 80 businesses and over 30 investors demonstrate global leadership by driving forward Integrated Reporting (IR).
As providers of financial capital are the primary audience IR, the Investor Network is a crucial platform for investors to shape the future of corporate reporting and provide input to the IR Framework, a tool for businesses as they create integrated reports. The Investor Network is furthermore aiding the evolution of IR through being advocates of IR with companies, investors and other stakeholders, sharing investors’ views on the shortfalls in current corporate reporting, and providing feedback and guidance on innovations and proposals emerging from the IIRC Pilot Programme Business Network. More information for signatories.
Sustainable Stock Exchange Initiative
In support of the broader Sustainable Stock Exchange (SSE) Initiative, Aviva Investors launched an investor collaborative engagement with stock exchanges in 2009. To address market-wide and systemic issues, this ongoing engagement will communicate the investor’s perspective on responsible investment, what constitutes a sustainable stock exchange and the overarching need for enhanced ESG disclosure. The overarching objective of the SSE Investor Working Group (SSE IWG) focuses on exchanges and their regulators enhancing listing rules and/or regulatory initiatives to require the disclosure of sustainability strategies among listed companies. The SSE IWG collaborates closely and provides strategic guidance to the SSE Initiative; it is separate in that it is driven directly by investors. The SSE Initiative works as a partnership between the UN and its affiliated organisations, stock exchanges and their regulators, investors, companies and additional ad-hoc partners. The PRI Initiative, UNCTAD, the UN Global Compact and UNEP-FI act as the core organisers of the SSE Initiative. More information for signatories.
|UN Global Compact Principles – managed by Danielle Chesebrough|
PRI for RIO: Encouraging companies to join the UN Global Compact
The UN Global Compact is a strategic initiative for businesses that are committed to aligning their operations and strategies with 10 universally accepted principles in the areas of human rights, labour, environment and anti-corruption. With over 10,000 corporate signatories in more than 140 countries, participation in the Global Compact initiative has become a critical indicator of a company’s ability to identify and manage environmental, social and governance (ESG) issues that are material to investors. To support further growth of the UN Global Compact, and reinforce that investors are taking note of corporate membership in business associations and similar organisations, this engagement is inviting 2000 listed companies to consider joining the UN Global Compact. More information for signatories.
Communication on Progress: Leaders and Laggards
As a primary driver of globalisation, companies can help ensure that markets, commerce, technology and finance succeed in ways that benefit economies and societies. Participating in the UN Global Compact and fully adhering to its reporting requirement sends a signal that a company is aware that environmental, social and governance issues are increasingly relevant to long-term financial success. Submitting an annual mandatory report, known as a Communication on Progress, is an important part of the Global Compact and represents a key area where PRI signatories have significant leverage and influence. This engagement has taken place each year since 2008, asking non-reporting Global Compact companies to submit their Communication on Progress to regain active status, or, conversely welcome advanced-level reporting. More information for signatories.
ESG Investor Briefings
Building on consultations with PRI investors and the UN Global Compact’s LEAD companies, the Global Compact and PRI launched the ESG Investor Briefing initiative to improve the communication of environmental, social and governance (ESG) value drivers between companies and investors. The project asks companies to host a 1-hour ESG Investor Briefing to an audience of investors on the PRI webinar platform using the project’s ESG Value Driver Framework. Companies are encouraged to have both Investor Relations and CSR colleagues work together to create the presentation, with CFO participation during the Briefing. Through these Briefings, participants have the opportunity to learn more about what presenting companies deem material ESG value drivers for their business, provide feedback to the company and continue to enhance the ESG Value Driver Framework. Additionally, the Briefings will serve as a platform to explore how companies’ ESG value drivers can be communicated beyond sustainability reporting and ultimately be included in mainstream analyst calls. More information for signatories.