Einde inhoudsopgave
Corporate Social Responsibility (IVOR nr. 77) 2010/12.1.1
12.1.1 Business risks & related investment risks
Mr. T.E. Lambooy, datum 17-11-2010
- Datum
17-11-2010
- Auteur
Mr. T.E. Lambooy
- JCDI
JCDI:ADS364572:1
- Vakgebied(en)
Ondernemingsrecht (V)
Voetnoten
Voetnoten
E.g. as demonstrated by research carried out by Nyenrode Business Universiteit and IUCN-NL in 2007 (research project: 'Bedrijfsleven en biodiversiteit', Lambooy & Hordijk, 2007). See also: the 'UN Principles for Responsible Investments' which are endorsed by most of the world players (together representing USD 18,087 trillion assets under management by May 2009). See further: Annual Report of the PRI Initiative 2009, available at www.unpri.org/files/PRI%20Annual%20Report%2009.pdf; UNEP FI (2005), available at: www.unepfi.org/fileadmin/ documents/freshfields_legal_resp_2005.pdf; the follow-up report to the UNEP FI 2005 publication (July 2009), available at: www.unepfi.org/fileadmin/documents/fiduciaryII.pdf; Eumedion, 'Position paper on engaged shareholdership' (adopted on 12 March 2010), available at: www.eumedion.nl/page/downloads/Position_Paper_Engaged_shareholdership_DEF.pdf, websites accessed on 2 April 2010.
The first jurisdiction to establish a formal obligation for pension fund ESG disclosure was the United Kingdom; see: The Occupational Pension Schemes (Investment and Assignment, Forfeiture, Bankruptcy, etc.); Amendment Regulations 1999; SI 1999 No. 1849 and Regulation 11A. Beginning in 2000, most pension funds there have been required to disclose,the extent (if at all) to which social, environmental or ethical considerations are taken into account in the selection, retention and realization of investments. Over the ensuing seven years, Austria, Australia, Belgium, France, Germany, Italy and Sweden have put similar rules in place. See about this subject: L. O'Neill (Shareholder Association for Research and Education), 'Regulating pension fund disclosure of environmental, social and governance practices. Submission to the Ontario Expert Commission on Pensions', at: http://www.tuac.org/en/public/e-docs/00/00/01/A8/document_doc.phtml, accessed on 12 July 2010. See also: the research report of the ' Commissie Burgmans', which contained a recommendation on this point for the new Dutch corporate governance code, which was however not followed (Dutch Ministry for Economic Affairs, 2008), at: www.ez.nl/Actueel/Kamerbrieven/Kamerbrieven_2008/November_2008/ Maatschappelijk_Verantwoord_Ondernemen/Brief_advies_commissie_Burgmans/Advies_ Commissie_Burgmans, accessed on 17 April 2010.
Mulder (2007); UNEP FI (2008); see also: Nyenrode 2007 study supra note 2.
The UN PRI is an investors' initiative, in cooperation with UNEP FI and the UN Global Compact, and was initiated in 2005. The principles for investment provide a framework for investors to give appropriate consideration to ESG issues. See: www.unpri.org, accessed on 17 April 2010.
This figure was developed by Ard Hordijk to serve as a communication tool for the research project.
Pension funds and asset management companies increasingly seek to incorporate sustainability issues in their investment decisions.1 The link between a company and biodiversity and ecosystem services (BES) is an important issue to be taken into consideration when taking investment decisions. Biodiversity is a good indicator for the health of the planet: it refers to the variability among living organisms and the entire ecological complexes of which they are a part. Biodiversity is crucial for the functioning of ecosystems. Most businesses depend on nature for the delivery of 'ecosystem services'. Four categories of ecosystem services provided by nature can be distinguished:
provisioning services: nature produces harvestable goods such as fish, other food products, water, timber and fibre;
regulating services: coral reefs and forests prevent floods, nature regulates climate and water quality, sufficient levels of genetic diversity decrease vulnerability to diseases;
cultural services: nature offers an environment for recreation, aesthetic enjoyment and spiritual fulfilment; and
supporting services: soil formation, pollination by bees and other insects, nutrient cycling, water cycling and photosynthesis are all ecosystem services.
Business relates to BES in two ways. Firstly, economic activities affect BES, e.g. through land conversion and coral reef destruction, overexploitation of natural resources, contributions to climate change, pollution and the introduction of invasive species. These negative impacts threaten the ease of use of BES in the long-term. Secondly, companies depend on BES, e.g. on the existence ofhealthy forests and seas for the provision of commodities such as fish and timber, on bees and butterflies for the pollination of flowers (e.g. of agricultural crops and fruit trees), and on freshwater sources for the provision of water. Consequently, the deterioration or loss of BES generates risks for business. For example, the security of supply of raw materials, agricultural products and clean water will decrease, and access to land will become more problematic when the quantity and quality of land declines. In addition, it is expected that due to (imminent) scarcities, stricter laws concerning BES will be put in place regarding the use of water, land, forests, emissions into the air and so on. The competition to obtain licences will become fiercer. New rules will burden companies with compliance measures and liabilities; access to capital can become more difficult when financiers demand that companies perform their activities in a way that is sustainable to BES. More pressure can also be anticipated from increased societal attention for BES. Hence, companies will have to improve their methods and best practices in order to maintain a good reputation.
Because of the corporate risks involved with BES loss, investors also run the risk of lower and a less secure return on investment in the longer term. Furthermore, there will be an increase of new regulatory prescriptions that require an institutional investor to disclose to what extent it takes extra-financial corporate information into account in its decision-making process, e.g. regarding environmental and societal aspects of a company's activities.2 It is also anticipated that private and public regulation will demand investors to integrate Environmental, Social and Governance (ESG) issues into their investment decisions.3 For example, the UN Principles for Responsible Investments (UN PRI) encourage investors to integrate ESG into mainstream investment.4 Non-compliance will raise questions on the prudency of the policies and the practices of the institutional investor. Finally, investors have to be aware of an increased reputational risk if they do not pay sufficient attention to corporate social responsibility issues.
Concluding, the rapid decline in and the loss of biodiversity has, and will in the future have, a great impact on the private sector and its profitability. The links between corporate activities and BES are visualised in Figure 12.1: dependency relationships are positioned on the left and impact relationships on the right side.
Figure 12.1 Overview of relationships between corporate activities and BES5