On Your Behalf - August 2008 Report

The Expanding Reach of Responsible Investment

In 2006, more than 30 institutional investors, including the General Board of Pension and Health Benefits of The United Methodist Church (General Board), signed a historic, first-of-its-kind document called the Principles for Responsible Investment (PRI). Created under the auspices of the United Nations Environment Programme Finance Initiative and the United Nations Global Compact, the Principles recognize the importance of environmental, social and governance (ESG) factors in investment decision-making.

Work on the Principles began in 2005, when Kofi Annan, Secretary-General of the United Nations, invited some of the world’s largest institutional investors (including the General Board) to craft a document relating to responsible investment. The resulting six Principles were officially released in April 2006. Annan called them a “framework for achieving better long-term investment returns and more sustainable markets.”

There is a growing body of evidence that consideration of ESG factors makes prudent financial sense when making investment decisions. A number of studies documenting how socially responsible investing compares favorably with non-socially responsible investing can be found at www.sristudies.org. Today, the General Board is one of many institutional investors that believes long-term shareholder value is best served when ESG issues and other sustainability concerns are taken seriously by company management and investment decision-makers.

What Are the Principles?

The six Principles attest to the importance of ESG issues and commit signatories to incorporating these issues in their investment decision-making. The Principles are strictly voluntary, but signatories are expected to report each year on how successfully they have integrated the Principles into their investment work.

Following are the six Principles:

1. We will incorporate ESG issues into investment analysis and decision-making processes.
2. We will be active owners and incorporate ESG issues into our ownership policies and practices.
3. We will seek appropriate disclosure on ESG issues by the entities in which we invest.
4. We will promote acceptance and implementation of the Principles within the investment industry.
5. We will work together to enhance our effectiveness in implementing the Principles.
6. We will each report on our activities and progress towards implementing the Principles.

Reflecting the growing acceptance of socially responsible investing, the number of PRI signatories has grown to more than 400, collectively representing approximately $15 trillion in assets. In June, more than 150 of these signatories gathered in Seoul, Korea, and signed the Seoul Declaration, a statement supporting consideration of ESG issues by investors, financiers and companies operating in Asia.

The General Board and the Principles

The General Board’s commitment to responsible investing is well-known. Not only do we screen our investments to uphold Church values, but we also actively engage the companies in which we invest on a variety of social and environmental issues. Our goal is to help convince companies that sensitivity to these issues ultimately is in the best interest of shareholders, not only by increasing shareholder value but by creating the conditions that promote better long-term sustainability.

Not all engagements or efforts to influence corporate behavior are successful. Some companies exhibit little interest in shareholder concerns. Others are polite but eventually unresponsive. Like all socially responsible investors, the General Board must balance available engagement resources against the likelihood that engagement efforts someday will achieve tangible results. Unfortunately, we cannot engage every company, but in partnership with other investors, we are able to reach many more companies than we otherwise could. That is why collaborative efforts such as the PRI are so important. By partnering with other investors who recognize the value of ESG factors, we are able to expand the reach of responsible investing.

The Benefits of Being a PRI Signatory

The PRI is more than a document or list of basic ideas. A secretariat has been created to promote the PRI and help coordinate the advocacy work of its signatories. There is an “Engagement Clearinghouse,” where signatories explain their engagement activities and seek partners. Through an implementation blog known as “PRI in Practice,” signatories ask questions about and seek information on the practical implementation of the PRI. An annual “PRI in Person” event brings signatories together for important discussions on implementation strategies and collaborative opportunities. In addition, an annual “Reporting and Assessment Tool” report gives signatories the opportunity to discuss their PRI implementation progress. The 2008 report provides many examples of how asset owners and investors are paying more attention to ESG issues, both in their own work and the work of their service providers. The report also includes a case study about the General Board’s public disclosure of its proxy voting record beginning in 2002. A copy of this report is available at www.unpri.org/files/2008PRI_Report_on_Progress.pdf.

The General Board is proud to be a PRI signatory and to provide support for this important investor-related endeavor. A statement describing how we attempt to comply with each Principle is available at www.gbophb.org/UserFiles/File/sri/PRI.pdf. Resolution 213 from The Book of Resolutions reminds us that “every financial investment has ethical dimensions with consequences that are both fiscal and social.” We encourage you to promote socially responsible investing by endorsing the PRI and using your financial resources to help create “a more ecologically equitable and sustainable world leading to a higher quality of life for all of God’s creation.” (The Book of Discipline 2004, ¶160)