UN Launches New Responsible Investment Initiative

UNEP and Investors Join Forces to Redefine Materiality of Social, Environmental and Corporate Governance

The United Nations Environment Programme (UNEP) recently announced that it is working with major institutional investors to develop a set of globally recognized principles for responsible investment by September 2005. 

The new principles will protect both the planet and long-term shareholder value by integrating environmental, social and governance concerns into investor and capital market considerations. The initiative is being launched by UNEP in response to this proposal and the results of a 14-month study published by UNEP on the financial impacts of sustainable development.

“The Materiality of Social, Environmental and Corporate Governance Issues to Equity Pricing” is based on eleven sector reports by brokerage house analysts that were produced at the invitation of the UNEP Finance Initiative Asset Management Working Group. 

The reports covering eight industry sectors provide a rich insight into how mainstream financial analysts are tackling a range of complex new threats and opportunities in their assessments of corporate performance. 

The report is a clear recognition from major financial institutions that the environmental and social components of sustainable development, as well as the economic considerations, should sit at the heart of investment and capital market considerations. 

Some of the key findings include: 

  • Environmental, social and corporate governance issues affect long-term shareholder value. In some cases those effects may be profound.
  • Financial research is hindered both due to the paucity of reporting on the part of many companies concerning environmental, social and corporate governance issues and because of insufficient disclosure of these issues in annual reports.
  • Financial research is greatly aided when there are clear government positions with respect to environmental, social and corporate governance issues. In some cases analysts were not able to provide in-depth reports due to a lack of certainty regarding government policy.

“The time is now right to develop principles to guide best practice in responsible investment decisions worldwide,” said Klaus Toepfer, UNEP’s Executive Director. “The world’s largest banks have the Equator Principles to guide their actions in a manner supportive of sustainable development. We believe the investor community is now ready for similar principles to assist with the complex process of responsible investment that meets investor expectations,” he said. 
“The short-termism inherent in our markets is a critical challenge when it comes to addressing environmental and broader sustainability issues,” Toepfer continued. 

Sir Graeme Davies, Chairman of the Universities Superannuation Scheme Ltd, the third largest UK pension fund, said: “Pension funds have liabilities which last several decades so it's inevitable that the serious social and environmental issues which the UN system seeks to address will increasingly become material investment issues as well. 

Ian Ihnatowyz, President and CEO of Acuity Investment Management Inc., which represented Canada in the initiative was quick to point out, this does not mean that every social issue is financially material. " We feel that there is now enough evidence available to suggest that strategies can be developed for integrating these issues while meeting fiduciary obligations."

Keith Jones, CEO of Morley Fund Management agreed, commenting “It is clear to us that success for companies focused on consistent progress over time means embracing the concept of sustainable economic growth. And an aspect of Morley's success has been our use of SRI expertise to identify companies that are successful because they adopt environmental, social and corporate governance best practice as part of their own idea of winning." 

The study, “The Materiality of Social, Environmental and Corporate Governance Issues to Equity Pricing,” was launched at the UN Global Compact Leaders Summit on 24 June in New York. 

Download the full report 

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