Investment and Enterprise Responsibility Review
Analysis of investor and enterprise policies on corporate social responsibility
Transnational corporations (TNCs) play an ever more important role in sustainable development as conduits of capital, technology, and management know-how. Increasingly, TNCs are being called upon to address broader environmental, social and governance (ESG) issues. At the same time large globally active investment institutions are becoming increasingly aware of the potential impact of a range of non-financial issues (e.g. climate change, human rights, corporate governance practices) on an investment proposition.
This review of the current state of practices in the area of corporate social responsibility (CSR) among the world’s 100 largest TNCs and responsible investment (RI) among the 100 largest institutional investors reveals a number of important insights:
- Private policy at a large enough scale can have an impact similar to, or greater than, public policy. As a result, CSR has emerged as an important area of soft law self-regulation (or ‘soft-regulation’). CSR can present policy makers with new options and tools for addressing key development challenges.
- Most large TNCs now recognise the importance of CSR yet the standard of communication varies widely. There is a role for policy makers to enhance the quality of communications. Various policy options exist such as supporting the harmonization of CSR reporting, and mandating such standardized reporting through stock exchange listing requirements.
Responsible investment practices (efforts by investors to incorporate ESG issues into investment decisions and to engage with investee companies to encourage ESG practices) have become common features of the world’s 100 largest pension funds. Regulators can work to strengthen the mechanisms through which institutional shareholders are able to influence the ESG practices of the companies in which they invest, while also encouraging investors to formally articulate their stance on ESG issues in public reports.
- At least basic climate change related information is now reported by most large TNCs. However significant inconsistencies and inadequacies among company reports undermine the comparability and usefulness of this information. Unless reporting is produced in a consistent and comparable manner, it is difficult for policy makers, investors and other stakeholders to use it to make informed decisions. Policy makers could promote an internationally harmonized approach to the way companies explain, calculate and define climate change related emissions.
- A number of voluntary initiatives are taking a leading role in designing and facilitating CSR and responsible investment instruments, encouraging improved corporate communication on ESG issues and creating important benchmarks, based on universally agreed principles. Policy makers can become involved in these initiatives with the aims of promoting sustainable development goals and identifying useful tools to complement government rules.