Transcript Understanding the Impact of Engagement

THE IMPACT OF
ENGAGEMENT
Sonal Mahida, Head of North America, UN Principles for Responsible
Investment
Joshua Humphreys, President, Croatan Institute
Rev. David Schilling, Senior Program Director, Interfaith Center on
Corporate Responsibility
Mark Regier, Vice President of Stewardship Investing, Praxis Mutual
Funds (Moderator)
November 9, 2014
The Broadmoor
Colorado Springs
Understanding the Impact
of Engagement
SONAL MAHIDA, HEAD OF NORTH AMERICA
WHY ENGAGE WITH COMPANIES?
THE FINANCIAL IMPACT OF ACTIVE OWNERSHIP – ACADEMIC EVIDENCE
A 2006 study found that Hermes Focus Fund
“substantially outperforms benchmarks” with an
abnormal return net of fees of 4.9% a year against
the FTSE all-shares index

The study further suggests that this is “largely
associated with engagements rather than stock
pricing”
A separate 2012 study found that US companies
targeted in corporate governance and climate
change related engagements by F&C asset
management between 1999 and 2009, showed
significant financial outperformance of the market
in the period following engagement

The average one-year abnormal return after initial
engagement was 1.8%, growing to 4.4% for
successful engagements, and no market reaction for
unsuccessful ones
What Issues are being
covered?

ENGAGEMENTS COORDINATED BY THE TEAM
Criteria met
 Consistent with, and
supportive of, the PRI mission
and Clearinghouse vision
 Relevant to a potentially large
number of signatories
 Significance of the issue/link
to negative externalities
 Strength of the business case
 Geographical spread
 Consistency with UN goals,
support for UN GC initiatives
INVESTOR ENGAGEMENTS
PRIORITY ENGAGEMENTS LED BY THE PRI:
Water risks, fracking, emissions reduction targets,
sustainable palm oil
Labor standards in the agricultural supply chain, employee relations, human rights
in the extractive sector
Director nomination process, anti-corruption, ESG factors in
executive pay
ESG DISCLOSURE
Exchanges
ESG Investor Briefings and Sustainable Stock
EVALUATION FRAMEWORK
PROCESS MILESTONES
ESCALATION
PHASE
(up to 12
months)
FURTHER
DIALOGUE
(12-24 months)
ESTABLISH THE
INVESTOR GROUP AND
INITIATE ENGAGEMENT
(3-7 months)
RESEARCH AND
PROJECT
DEFINITION
(7-10 months)
PERFORMANCE MILESTONES
IMPLEMENTATION
POLICY &
STRATEGY
ACKNOWLEDGEMENT
AWARENESS
DISCLOSURE and TRANSPARENCY
WHO USES THE CLEARINGHOUSE
PLATFORM?
REGIONS
TYPE OF SIGNATORIES
EUROPE
NORTH AMERICA
24%
INVESTMENT
MANAGERS
53%
OTHER
17%
OCEANIA
12%
ASSET
OWNERS
32%
SERVICE
PROVIDERS
14%
47%
USE OF THE PLATFORM AROUND THE WORLD
More than 420 investors involved in over 500 projects
UNITED KINGDOM
Anti-corruption
CANADA
investor
statement on
climate
change
FRANCE & SWEDEN
Director nomination practices
ITALY
Executive remuneration
BANGLADESH
Responsible business and
Investment in conflict-affected
countries
UNITED
STATES
disclosure on
political lobbying
expenditures
BRAZIL
ESG practices
by utility
companies
WESTERN
SAHARA
Natural
resources
SOUTH AFRICA
minority
shareholders rights
in the
DEMOCRATIC REPUBLIC OF
CONGO
pharmaceutical
Supply chain issues sector
AUSTRALIA
Linking ESG issues
to executive pay
INDONESIA
Sustainable palm oil industry
WHAT TYPES OF ENGAGEMENTS ARE UNDERTAKEN?
TOPICS COVERED
TYPE OF ACTIONS
SHAREHOLDER
RESOLUTION
42%
CORPORATE
GOVERNANCE
SINGLE CONTACT
ENGAGEMENT
34%
13%
ENVIRONMENTAL
20%
PUBLIC POLICY
ENGAGEMENT
16%
COMPREHENSIVE
ENGAGEMENT
EXPLORATORING
DISCUSSION AND
INFO SHARING
12%
17%
SOCIAL
ESG
29%
17%
SECTOR TARGETED BY ENGAGEMENTS
INDUSTRIALS
18%
ENERGY
CONSUMER DISCRETIONARY
FINANCIALS
15%
14%
14%
MATERIALS
CONSUMER STAPLES
9%
INFORMATION TECHNOLOGY
HEALTH CARE
4%
13%
5%
UTILITIES
5%
TELECOMMUNICATION SERVICES
3%
IMPACT OF EQUITY
ENGAGEMENT (IE2)
A NEW FRAMEWORK FOR
DOCUMENTING THE IMPACT OF
ENGAGED PUBLIC EQUITY INVESTING
Joshua Humphreys
Initial IE2 Sponsors
Engagement Activity Taxonomy
Proxy Process
• Engage with companies through shareholder
resolutions and proxy voting on ESG issues.
Dialogue
• Communicate directly or indirectly with a company to
demand changes in practices that impact ESG issues.
Policy
• Attempt to influence governmental regulation to
require companies to improve their ESG impacts.
Assertive Action
• Take legal action or campaign to force or pressure a
change in company behavior.
IE2 Reporting Framework
Overarching Engagement
Activity 1
Type
Role
Milestones
Activity 2
Type
Role
Milestones
Mapping Engaged Investor Themes
and Activities
Large SRI “All-Rounder”
Governance
Activist
Engagements by Issue Area and Type
Comparing Impact of Engagement
Across Investors
Future Directions: Phase II
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A group of initial investors have committed to
alpha-test the IE2 reporting framework over the
next proxy season
Coordinate a consultation process to obtain
stakeholder feedback on the framework
Refine the IE2 reporting framework, based on
alpha-testing and consultation process
Developing a beta version, online database app
Outreach to wider group of potential partners,
sponsors, supporters
Thank you



Join the topic table on Monday at 1pm – look for
the IE2 sign
See our website: www.croataninstitute.org/ie2
Contact:
Josh Humphreys
[email protected]
Tel.: (919) 794-7440 x 102
Cell: (919) 448-4462
ICCR’s Impact Through
Engagement
Rev. David Schilling
 The Interfaith Center on Corporate Responsibility is a coalition of
faith and values-driven organizations who view the management of
their investments as a powerful catalyst for social change. Our
membership comprises nearly 300 organizations that collectively
represent over $100 billion in invested capital.
 ICCR members and staff engage hundreds of multinational
corporations annually to promote more sustainable and just
practices because we believe in doing so they will secure a better
future for their employees, their customers and their shareholders.
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5 year engagement led by Tri-State Coalition on Responsible
Investment, involving broad group of investors
Multiple issues addressed—climate change, water, human rights, palm
oil sourcing, labor rights in supply chain
February, 2014, ADM agrees to adopt Human Rights policy
Includes ethical recruitment provisions requiring its suppliers to “not
charge fees to job-seekers in exchange for employment, do not use
labor brokers who charge such fees, and do not withhold collateral in the
form of money, identification or other personal belongings as a condition
of employment”
Meet with engagement team of investors quarterly to develop
implementation steps
Rana Plaza
ICCR Bangladesh
Investor Initiative

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Join the multi-stakeholder initiative--the Accord on
Fire and Building Safety
Commit to strengthening local trade unions and to
ensuring a living wage for all workers
Publicly disclose all their suppliers including
those from Bangladesh
Ensure that appropriate grievance mechanisms
and effective remedies for affected workers and
families, including compensation, are in place
ICCR Bangladesh
Investor Initiative
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Over 200 investors from 12 countries with total AUM
of over $4 trillion signed on to ICCR’s statement
Since May 2014, investors have had 8 conference
calls to plan strategies to engage companies
sourcing in Bangladesh
24 companies not involved in the Accord or Alliance
received letters from investors in the initiative
Companies urged to contribute to the Rana Plaza
Donors Trust Fund—currently $19.4 million has
been raised; $40 million needed
QUESTIONS?
The Impact of Engagement
SRI Conference 2014