{"id":30468,"date":"2012-12-11T10:56:00","date_gmt":"2012-12-11T10:56:00","guid":{"rendered":""},"modified":"2020-05-14T18:43:15","modified_gmt":"2020-05-14T18:43:15","slug":"5468-can-activist-shareholders-drive-a-new-era-of-sustainable-investment-in-china","status":"publish","type":"post","link":"https:\/\/dialogue.earth\/en\/business\/5468-can-activist-shareholders-drive-a-new-era-of-sustainable-investment-in-china\/","title":{"rendered":"Can activist shareholders drive a new era of sustainable investment in China?"},"content":{"rendered":"<p>Since the western banking crisis of 2008, &ldquo;responsible&rdquo; has not been a word readily associated with investment. &ldquo;Casino&rdquo;, &ldquo;cowboy&rdquo;, &ldquo;rogue&rdquo; and &ldquo;unsustainable&rdquo; have more regularly featured in newspaper headlines as a string of scandals has unravelled public confidence in the reliability and decency of the financial sector.<\/p>\n<p>But, over the past few years, a very different story has been playing out in the world of investment banks, speculators, hedge funds and pension portfolios. An emerging body of organisations and campaigners is pushing for a more sustainable approach to finance &ndash; what they call &ldquo;responsible investment&rdquo; &ndash; from the inside. They want to persuade shareholders to demand a more active say in how, and how well, their money is used.<\/p>\n<p>Leading the pack is the UN-backed <a href=\"https:\/\/www.unpri.org\/principles\/\">Principles for Responsible Investment<\/a> (PRI), which works with many of the world&rsquo;s biggest investors to push for better environmental and social corporate performance. Then there&rsquo;s <a href=\"https:\/\/www.fairpensions.org.uk\/\" target=\"_blank\" rel=\"noopener noreferrer\">Fair Pensions<\/a>, a UK charity that uses internet tools to empower ordinary pension holders; and the Cambridge University-based <a href=\"https:\/\/www.cpsl.cam.ac.uk\/bei\" target=\"_blank\" rel=\"noopener noreferrer\">Banking Environment Initiative<\/a>, a bank-led consortium seeking to redirect capital in environmentally friendly ways.<\/p>\n<p><a href=\"https:\/\/www.chinadialogue.net\/article\/show\/single\/en\/5454-My-top-sustainable-investment-reads\" target=\"_blank\" rel=\"noopener noreferrer\">Also see: Nick Robins&#8217; top sustainable investment reads<\/a><\/p>\n<p>These are not banner-waving activists attacking the ethics of the financial powerhouses, but financially savvy operators, out to persuade investors they will achieve better returns if they push for sound environmental and social management, and good corporate governance. <\/p>\n<p>&ldquo;The companies that look after their workers, that don&rsquo;t have huge pollution issues, that have good relationships with their communities, that have safe products &ndash; these are the sorts of companies that will ultimately prosper,&rdquo; explains James Gifford, executive director at PRI. <\/p>\n<p>There is evidence this message is very slowly starting to get through. PRI now has more than 1,000 signatories, representing around US$30 trillion in assets. The list includes some of the biggest asset managers and pension funds in the world &ndash; UBS, Blackrock, the Norwegian government, plus &ldquo;the majority of funds under management in Brazil, South Africa, Australia and most of western Europe&rdquo;, according to Gifford. <\/p>\n<p>Since even the biggest investors rarely have more than 1-2% of the stock in a listed company, PRI has also set up a forum to coordinate investor coalitions. The idea is that investors can pool knowledge and resources and take their concerns to a particular company en masse. In 2010, for example, an alliance of 16 investors, worth a combined US$1.5 trillion, asked 100 of the world&rsquo;s biggest companies to sign an initiative to improve corporate practices around water. Twenty-one firms did so, including big names like Nike, Cadbury and GlaxoSmithKline. Other coalitions have covered issues from environmental disclosure to corporate engagement with Sudan and the global arms trade.<\/p>\n<p>Fair Pensions has made similar attempts on the grassroots side. Two years ago, in alliance with other NGOs, it coordinated the UK&rsquo;s first <a href=\"https:\/\/www.fairpensions.org.uk\/tarsands\/resolutions\" target=\"_blank\" rel=\"noopener noreferrer\">shareholder resolutions<\/a> &ndash; proposals put forward by shareholders for vote at a company&rsquo;s annual general meeting &ndash; addressing environmental risk. The resolutions asked BP and Shell to publish details of the environmental, social and financial risks associated with their tar sands projects in Canada after more than 6,000 people contacted their pension providers to express concern about energy intensive oil-drilling in this fragile ecosystem. <\/p>\n<p>Though these &ldquo;rebellions&rdquo; were ultimately quashed, they did have an impact, says Fair Pensions chief executive Catherine Howarth: &ldquo;Both BP and Shell became a lot more transparent about what was happening in the Canadian tar sands operations.&rdquo;<\/p>\n<p>Support for shareholder activism is also starting to trickle through from the academic world. In September, London  Business School fellow Elroy Dimson published a <a href=\"https:\/\/papers.ssrn.com\/sol3\/papers.cfm?abstract_id=2154724\">paper<\/a> concluding that shareholder engagement on climate change and corporate governance helps companies to outperform their peers.<\/p>\n<p><b>China: the next frontier?<br \/>\n<\/b><br \/>\nBut progress is not uniform. Japan and South Korea excepting, Asia as a whole has not embraced the &ldquo;responsible investment&rdquo; movement, says Gifford. Of UNPRI&rsquo;s 1,000 signatories, just two are Chinese. As China&rsquo;s global financial clout grows, this is something Gifford wants to change. He has called China the &ldquo;next frontier&rdquo; for responsible investment.<\/p>\n<p>When <i>chinadialogue <\/i>spoke to Gifford, he had just returned to the UK from a trip to China, ready with evidence that the Chinese need the PRI. He reeled off a list of high-profile scandals that have dealt a financial blow to Chinese companies and in turn their shareholders. After the Mengniu Dairy scandal, in which melamine-tainted milk killed at least six children and sickened hundreds of thousands more, the company share price fell 31%. The China Railway Construction corruption scandal pushed the stock down 25%. In the case of <a href=\"https:\/\/www.chinadialogue.net\/article\/show\/single\/en\/3805-Their-own-worst-enemy\" target=\"_blank\" rel=\"noopener noreferrer\">Zijin Mining<\/a>&rsquo;s toxic copper spill in Fujian, the company suffered a 12% reduction in stock price. The list goes on.<\/p>\n<p>&ldquo;The point we are trying to make is this isn&rsquo;t about sacrificing returns to make the world a better place,&rdquo; says Gifford. &ldquo;This is about running responsible companies that don&rsquo;t get themselves into all sorts of trouble cutting corners, being corrupt, trying to do things on the cheap.&rdquo; To achieve change, he said, the signals from investors to companies need to move from the traditional message of &ldquo;extract as much value out of your market as possible and give it to us the next quarter&rdquo;.<\/p>\n<p>China is taking its own measures to tackle these problems. The explicit aim of the government&rsquo;s <a href=\"https:\/\/www.chinadialogue.net\/article\/show\/single\/en\/3740-Credit-where-it-s-due-1-\" target=\"_blank\" rel=\"noopener noreferrer\">Green Credit Policy<\/a>, launched in 2007, is to limit commercial funding to dirty companies. With its own initiatives under way, does China really need to be part of this global club?<\/p>\n<p>For Gifford, the key advantage for China of signing up to the PRI would be linking up with other investors, including those grappling with similar issues around commodities and farmland in developing countries. &ldquo;China still has massive challenges in terms of corporate governance and accountability to shareholders. I think the PRI would provide a really strong community of investors to plug into that global dialogue.&rdquo; <\/p>\n<p>And, like Wall Street, China is struggling with a &ldquo;gambling culture&rdquo;, says Gifford &ndash; a hunger for short-term investments, with damaging long-term impacts. &ldquo;The volatility of the Asian stock markets is quite big and that&rsquo;s in large part because there is a very large group of gamblers, investors who are really just playing the game. And that&rsquo;s not very helpful for long-term productive capital and enterprise.&rdquo;<\/p>\n<p>As well as facing common challenges, investors are dealing with an age of global capital, global supply chains and global customers, says Gifford. &ldquo;China is one of the biggest exporters in the world. It&rsquo;s really important that Chinese companies, if they want western capital and vice versa, are accountable.&rdquo;<\/p>\n<p><b>UK pension savings invested in China<br \/>\n<\/b><br \/>\nIt&rsquo;s not just the big institutional investors who are affected by this aspect of globalisation, points out Howarth. Increasingly, UK pension savings are invested in Chinese companies. This, she predicts, will bring demands for new levels of openness as companies or funds have to answer to global standards, not just local ones. &ldquo;It will come slowly, but it&rsquo;s inevitable that we will want the same level of access to information as we have here and we&rsquo;re absolutely right to demand it. Because you invest in a company and you&rsquo;ve given them money, which means that in return you should be able to see what&rsquo;s happening to it.&rdquo;<\/p>\n<p>Strengthening that connection between ordinary people and their invested pensions is more important than ever as the financial crisis rumbles on, she says.<\/p>\n<p>Confidence that your money is being managed properly includes making sure the companies it goes into are environmentally sustainable, says Howarth. After all, &ldquo;it&rsquo;s really illogical for people who are saving for the future to invest in companies that are potentially destroying our future.&rdquo; That point came out clearly, she says, shortly after Fair Pensions&rsquo; shareholder resolution on Canadian tar sands, when the Gulf of Mexico oil spill wiped around US$25 billion off BP&rsquo;s share price, to the cost of its shareholders. <\/p>\n<p>&ldquo;I think our resolutions were raising these kinds of operational and environmental risks. And the potential of those risks to have a real financial impact was demonstrated shortly afterwards in the Gulf of  Mexico,&rdquo; Howarth says. &ldquo;It was almost spooky the way it happened. And I deeply regret that it did happen. But it did suggest we were on to something.&rdquo;<\/p>\n","protected":false},"excerpt":{"rendered":"<p>With its reputation in tatters following the 2008 crisis, the financial world is being shaken by a push for more socially and ecologically responsible investment. Will Chinese shareholders be next?<\/p>\n","protected":false},"author":603,"featured_media":56163,"comment_status":"closed","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_acf_changed":false,"footnotes":""},"categories":[758],"tags":[],"hashtags":[],"country":[],"class_list":["post-30468","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-business"],"acf":[],"yoast_head":"<!-- This site is optimized with the Yoast SEO Premium plugin v26.0 (Yoast SEO v26.0) - https:\/\/yoast.com\/wordpress\/plugins\/seo\/ -->\n<title>Can activist shareholders drive a new era of sustainable investment in China? | Dialogue Earth<\/title>\n<meta name=\"description\" content=\"With its reputation in tatters following the 2008 crisis, the financial world is being shaken by a push for more socially and ecologically responsible investment. Will Chinese shareholders be next?\" \/>\n<meta name=\"robots\" content=\"index, follow, max-snippet:-1, max-image-preview:large, max-video-preview:-1\" \/>\n<link rel=\"canonical\" href=\"https:\/\/dialogue.earth\/en\/business\/5468-can-activist-shareholders-drive-a-new-era-of-sustainable-investment-in-china\/\" \/>\n<meta property=\"og:locale\" content=\"en_US\" \/>\n<meta property=\"og:type\" content=\"article\" \/>\n<meta property=\"og:title\" content=\"Can activist shareholders drive a new era of sustainable investment in China?\" \/>\n<meta property=\"og:description\" content=\"With its reputation in tatters following the 2008 crisis, the financial world is being shaken by a push for more socially and ecologically responsible investment. 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