The process of public policy has a number of stages which interact in a dynamic fashion: identification, information gathering, decision-making, implementation, evaluation, termination and renewal. 

Investors need to understand their role for each.

Understanding the public policy life-cycle

1 Identification

Decisions need to be made on what, whether and how to proceed. This will involve discussions about the issue, the information needed, the key actors to be consulted and the policy options that may be available.

Policy processes may be initiated by investors concerned about gaps in regulatory frameworks (e.g. Ceres call for the SEC to require the disclosure of climate change related information in SEC lings), or about weaknesses in the implementation of regulation (e.g. the Code for Responsible Investing in South Africa was catalysed by investors concerned that asset owners were not su ciently active in terms of corporate governance).

2 Information gathering

This will involve reviews of the available evidence, and discussions with key stakeholders and opinion formers. It will also include some initial analysis of the issue in question, of the options for action, and of the merits of alternative courses of action.

Investors can contribute by providing information on current practice (e.g. the insurance industry provided this input on Solvency II), and through providing practical support to policymakers (e.g. Japanese investment trade bodies helped to co-ordinate policymakers’ dialogue with investors on the Japanese Stewardship Code).

3 Consideration and decision-making

When making a decision on the policy measures to be adopted, policymakers will assess the likely e ectiveness of the options available (including the ‘do nothing’ option), the nancial costs and bene ts of taking action, and the political implications of taking action.

Investors may contribute to formal consultation processes (such as those that led to the French Grenelle II legislation and that informed the Japanese Stewardship Code). They may also publicly set out their views and lend explicit support to their preferred policy options.

4 Implementation

Depending on the case in question, further guidance or rules may need to be developed, and decisions need to be made regarding responsibilities for implementing the policy measure in question.

5 Evaluation

This involves reviewing the e ectiveness, the dependability, the cost, the intended and unintended consequences, and other relevant features of the policy measure in question.

Investors can contribute by providing evidence of the impacts and implications of the policy measure in question (e.g. Ceres produces annual reports tracking the number of companies reporting on climate change in their SEC lings and analyses the quality of these disclosures). Investors can also advise on how the policy measure may be strengthened or on whether the policy measure is no longer relevant.

6 Termination or renewal

Termination may be explicitly built into the policy measure, the policy measure may lose relevance or may not be implemented. It is frequently the case that terminated policy measures reappear in another form, such as in another piece of legislative or led by another agency.

Both the French Grenelle II legislation and the European Solvency II legislation can be seen as examples of legislation renewal, where the new legislation revised, updated and, in some ways, replaced existing bodies of legislation.

In many cases, the policy process is ongoing – requiring a long-term stance for e ective engagement from investors.

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    The case for investor engagement in public policy

    November 2014

The case for investor engagement in public policy