Putting the 'S' back into ESG: the Oxfam wayJanuary 2011
Oxfam has published research looking at how investors can influence international development and poverty work. Mike Scott speaks to Rory Sullivan, the initiative's community lead
While there have been great advances in recent years in corporate governance and in tackling environmental issues, social issues do not have the same traction with investors - 'S' is the poor relation in the ESG agenda.
A project set up by Oxfam in conjunction with Insight Investment, called Better Returns in a Better World, set out to examine the role of institutional investors in contributing to the alleviation of poverty and international development. It published its finding late last year.
Insight has since been broken up by former parent Lloyds Banking Group, but its former head of responsible investment Rory Sullivan, the investor community lead on the project, says: 'Social issues have nothing like the same level of attention as governance or climate change - there has been action on things like labour standards, but it has been piecemeal.'
Oxfam undertook the research 'because we recognise the enormous influence investors have on poverty and development both as capital allocators - where and in what they invest - and as major influencers of companies and public policy,' the NGO said. 'The role of investors in tackling social development issues is becoming increasingly important as the centre of gravity of the investment industry moves towards emerging markets.'
However, Sullivan adds: 'The idea that investors should do something on poverty and development is meaningless. It makes more sense to analyse specific issues.'
The project focused on seven poverty-related topics and examined how institutional investors could help tackle them. The topics were access to medicines, the arms trade, global supply chains, access to water, food security: investing in farmland, private equity investing in developing countries, bribery and corruption.
Investors are interested in these issues, says Sullivan, but it is difficult to incorporate them into their investment decisions. They are also very technical issues. 'No one really knows how to integrate these issues - there is no single equivalent to the tonne of CO2 in climate change, which you can put a value on. No one knows what companies should be doing.'
The way to address this, Sullivan adds, 'is not to try to develop new investment models, it is to think about norms - what we expect from companies in developed and emerging markets'. With norms in place, investors can then ask companies if they are complying with them and if not, whether they are aware of the risks of ignoring them.
Oxfam concludes that investors need clear regulatory frameworks or incentives in place before they will integrate development and poverty issues in their decisions.
It suggests that all institutional investors develop, implement and report on their responsible investment strategies, with a particular focus on how they will address poverty and development issues. They should also 'explicitly demand and reward investment managers that take particularly proactive approaches to responsible investment.'
Meanwhile, governments should require asset owners to have a policy on responsible investment and to publish details on implementation.
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