Experiences and lessons learned from five case studies of investors being engaged in the policy making process.
SEC Climate Change (USA)
In 2010, the US Securities and Exchange Commission (SEC) published binding interpretative guidance requiring companies to report on climate changerelated risks and opportunities in their regular 10-K filings. The SEC decision marked the culmination of several years of intensive lobbying by Ceres, who first called for the inclusion of this information in 10-K filings in 2003. While there has been an increase in reporting on climate change, a 2014 report from Ceres concluded that implementation has been weak, with the information provided by most companies being insubstantial and largely superficial.
- The scale of investor support was an important signal to the SEC that climate change was a critical issue for investors.
- Regulatory bodies and other stakeholders often do not have deep knowledge of ESG issues. Developing their understanding on such issues was a key element of Ceres f engagement.
Grenelle II (France)
In 2009 and 2010, the French government held a consultation on how the social and environmental information provided by companies in their annual reports might be strengthened. While some long-term investors called for the adoption of mandatory indicators and for stronger assurance processes, these calls were outweighed by concerns expressed by other investors and companies about the burden of reporting. Article 225 is, however, recognised as an important step in strengthening the reporting requirements for French companies.
- Investors need to speak with a common voice if they are to have a real influence on policy.
- Domestic policy is hugely important in moving forward the international agenda. Article 225 has been critical in the development of the EU fs Reporting Directive.
Solvency II (EU)
Solvency II was intended to consolidate relevant legislation and to bring legislation up to date with modern insurance practices. Following extensive preparatory work and consultation with national regulators, the insurance industry and other stakeholders, a legislative proposal was presented to the European Parliament in 2007. The final version of the Solvency II Directive was adopted in November 2009. This was subsequently amended to address some of the problems caused by volatile economic conditions. The Solvency II Directive is scheduled to come into effect on 1 January 2016.
- Policy can have unintended consequences. In this case, Solvency II may reduce insurance companies f willingness to invest in long-term infrastructure.
- Trade bodies have a critical role to play. On a major initiative such as Solvency II, policymakers can really only effectively engage with institutionalised stakeholders such as trade bodies, regulators or large organisations.
Stewardship Code (Japan)
One of the core elements of the Abenomics growth strategy for stimulating the Japanese economy was the development of a Stewardship Code which would encourage investors to play an active role in the governance of the companies in which they are invested. The Code was developed by a Council of Experts, which included representatives of the major Japanese investment trade bodies. The draft Code, which aligned with Japanese business norms and with relevant international standards such as the UK Stewardship Code, was issued for consultation in December 2013. The investment industry was supportive of the proposed Code. Since the final version was issued in February 2014, over 100 institutional investors have signed the Code.
- The active involvement of investors in designing the Code ensured that it reflected investors f interests.
- Overseas investment organisations have signed the Japanese Stewardship Code. This has been important in maintaining momentum and political support.
CRISA (South Africa)
In 2009 and 2010, a number of institutional investors met to discuss the implementation of the King Code. They were concerned that investors would not monitor the Code’s ‘comply or explain’ provisions. These investors encouraged the South African Institute of Directors to lead the development of the Code for Responsible Investing in South Africa, CRISA. A draft was published for comment in early 2011 and came into effect in February 2012. CRISA provides guidance on how institutional investors should carry out their investment activities and use their influence to promote good governance. Since CRISA was launched, there has been a significant increase in the level of collaboration on company engagement.
- The fact that CRISA was initiated by investors, that investors were involved in the design of the Code and that there was an open and inclusive consultative process were all important in ensuring that the Code was widely supported in the investment industry.
- It was important not to assume that that key individuals and organisations . including within government . would respond to the consultation. These individuals needed to be identified and proactively engaged.
The case for investor engagement in public policy
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Case study summaries