New York, USA (GLOBE-Net) - A year-long process to enhance the integration of environmental, social and governance factors into the global financial marketplace was highlighted last week when United Nations Secretary-General Kofi Annan launched the UN Principles of Responsible Investment. The heads of some of the world’s largest institutional investors were on hand to sign the historic document, which promise to have a profound impact on global financial markets and corporate investment standards.

Development of the Principles was overseen by the UN Environment Programme Finance Initiative and the UN Global Compact. These voluntary guidelines reflect a growing recognition among investors that environmental, social and governance (ESG) factors are materially important to long term financial returns.

See article: Finance and Sustainability - An Evolving Relationship - March 1, 2006 Click Here.

The set of six broad Principles is accompanied by thirty-five specific action suggestions that investors can undertake.

These Principles require Investors to:

• Incorporate ESG issues into investment analysis and decision-making processes.
  
• Be active owners and incorporate ESG issues into their ownership policies and practices.
  
• Seek appropriate disclosure on ESG issues by the entities in which they invest.
  
• Promote acceptance and implementation of the Principles within the investment industry.
  
• Work together to enhance their effectiveness in implementing the Principles.
  
• Report on their activities and progress towards implementing the Principles.

Read more on the Principles and the Action Suggestions on the UNEP PRI website
Click Here.

To date, 33 signatories have adopted the Principles, representing 16 countries and over US$2 trillion of assets under management. Some of the world’s largest institutional investors are signatories, including German reinsurance giant Munich Re, the United Kingdom’s largest pension plan (BT Pension Scheme) and pension funds from Norway, Ireland, France, Sweden, USA and South Africa.

Canadian signatories are the Canada Pension Plan Investment Board and Québec pensions funds Caisse de dépôt et placement du Québec and Comité syndical national de retraite Bâtirente.

The Principles put into much sharper focus the links between finance and sustainability.

“These Principles grew out of the understanding that while finance fuels the global economy, investment decision-making does not sufficiently reflect environmental, social and corporate governance considerations – or put another way, the tenets of sustainable development,” Mr. Annan said at the launch.

He added: “Developed by leading institutional investors, the Principles provide a framework for achieving better long-term investment returns and more sustainable markets. I invite institutional investors and their financial partners everywhere to adopt these Principles.”

The acceptance of the importance of ESG issues by large investors through the PRI is an important step in improving the contribution of financial investment to sustainable development. Although voluntary, the Principles do represent a commitment to work towards a more complete investment framework.

Many large public pension funds were involved in developing the Principles, including the Canada Pension Plan. It is estimated that public and private pension funds account for up to 35 percent of total global investment, and they are emerging as major proponents of Responsible Investment.

Donald Raymond, Vice President of Public Market Investments for the Canada Pension Plan Investment Board, provided a pension-investor’s perspective on the Principles during the ‘Mainstreaming Responsible Investment’ session moderated by Paul Clements–Hunt, Head of Unit for the UNEP Finance Initiative at the recent GLOBE 2006 conference on the business of the environment. The Canada Pensions Plan developed a new Policy on Responsible Investing in October 2005, said Raymond, and is active in shareholder engagement and research into environmental, social and governance factors.

“There is a growing acceptance that ESG factors can have a material, financial impact,” he said. “We don’t have an environmental, social or governance agenda, but we do have a fiduciary agenda to maximize returns without taking undue risk.”

Fellow GLOBE 2006 session speaker Paul Watchman, a Partner at Freshfields Bruckhaus Deringer, leading international law firm, contributed to a landmark legal study for the UNEP FI which concluded that there are no legal barriers arising from fiduciary duty to prevent pension funds taking environmental, social and governance considerations into account.

“Since (the study), there has been a greater appreciation in pension funds of the need for someone with ESG experience to be involved in the mandate of the pension fund,” he said.

Toni Symonds, chief consultant to the California State Assembly’s Committee on Jobs, Economic Development, and the Economy, also speaking at GLOBE 2006, said that the largest California pension plans do not screen for environmental, social and governance issues, but do evaluate exposure to risks such as energy usage and climate change.

The California Public Employees’ Retirement System (CalPERS), one of the largest pension plan funds in the United States, is a PRI signatory, and like the Canada Pension Plan, uses its status as a large investor to promote shareholder engagement, explained Symonds during ‘The Emerging Pension Fund Consensus’. “What we know is that direct engagement pays off, and I believe that’s the way forward,” she said.

By actively seeking out environmental, social and governance information, investors will improve the scope of research available for decision-making, allowing more robust analysis that should improve understanding of the contribution that environmental performance and other traditionally ‘non-financial’ indicators can have on profits. Companies will be forced to improve performance in these areas and to disclose these results to the public, reinforcing the push for greater Corporate Responsibility.

Dr. John D. Wiebe, President and CEO of the GLOBE Foundation of Canada and a member of the Advisory Panel that developed the Principles, noted that with the weight of trillions of dollars behind it, the Principles for Responsible investment are a major step forward that may have profound effects on global financial markets and corporate performance mandates.

“As the worldwide push for sustainability evolves, investment and business communities must continuously adapt their thinking to meet new challenges,” he added.