Investors influencing accountability

aksaroya —  11 October 2012 — Leave a comment

By James Bonner, independent sustainability consultant

Traditionally, expectations around improving the sustainability and corporate responsibility reporting of businesses has fallen on, and been driven by, governments and external regulators, and furthermore via the influence of other external stakeholders – NGOs, pressure groups and the wider public.

However, more recently, a number of investor groups have become increasingly involved and active in the area and through their role, as a powerful and influential stakeholder group, can have significant impacts on both corporate and investor behaviour with regards to non-financial risks (including wider sustainability issues).  The concept of Socially Responsible Investment (SRI) has become increasingly popular with the ‘USSIF, The Forum for Sustainable and Responsible Investment’ reporting in 2010 that sustainable and responsible investment in the U.S. had been growing at a significantly greater rate than all investments in general – 13% growth compared to 1%.

In addition, there have been a range of efforts to devise international frameworks and principles that aim to further incorporate environmental, social and governance (ESG) issues into the strategies/decisions of investors. By gaining the commitment of investors as signatories to their principles, such frameworks aim to progressively develop the inclusion of sustainability criteria throughout the wider investment landscape. Two of the most widely recognised frameworks that promote ESG considerations by investors are the Equator Principles and the UN Principles for Responsible Investment while the recently launched Natural Capital Declaration (NCD) is evident of investor groups considering their commitment to more specific ESG issues – in this case around the environmental issue of natural capital and biodiversity. To highlight what these principles cover, the following are an overview of their structures:

While such frameworks can be useful in developing the wider investment landscape to encourage organisations to be more accountable for their ESG impacts, there has been some criticism labelled at their effectiveness in practice. Such perspectives argue that they are ‘too weak to work’ and ‘encourage only minor alterations to investment decisions, within commercial constraints, rather than altering the underlying basis of decision-making’. This viewpoint, articulated here via an article by a representative of the International Institute for Environment and Development (IIED), nonetheless advocates strengthening such investment principles to improve their usefulness and effectiveness stating: ‘this should not be used as justification to stop using them [investment principles frameworks] – rather improved transparency, monitoring and measurement of the impact of investment principles is urgently needed.’

To take part in the debate join ACCA’s Accounting for the future conference.


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