Bangladesh, Compliance and ethical trading, Corporate Responsibility, Corporate Responsibility/Compliance, Labour standards, Responsible & Ethical Investment

And the first Bangladeshi fund to sign UNPRI is …

Apologies to any readers who dislike acronyms and business buzzwords. But the six UN Principles for Responsible Investment (UNPRI), or PRI for short, simply consist of what they state on the label.

The initiative aims to help investors integrate the consideration of environmental, social, and governance (ESG) issues into their decision-making and ownership practices. The goal is that by addressing these issues across the businesses in which they invest, PRI members will improve the long-term value of their investments and encourage a sustainable financial system.

Although its membership includes specialist ethical investors, UNPRI is aimed at and includes all types of investment institutions among its members, from large asset owners such as pension funds, to banks, fund managers, research houses, and actuaries. Signatories include the California Public Employees’ Retirement System and household names such as HSBC and the Johannesburg Stock Exchange.

Members take as common ground the view that while the market economy has emerged as the most efficient system for allocating economic resources, it is increasingly material for companies and shareholders to address the environmental impacts, social inequalities, and other negative externalities which affect or interact with their business activities.

It asks investors to review and report on the ESG impacts of all the different assets and businesses in which they invest, and to work collaboratively as shareholders to encourage companies to improve their ESG performance and hence, long-term value.

There are sound reasons why UNPRI deserves more attention in Bangladesh. Not least, the principles which were formally launched by Kofi Annan in April 2006, have now been signed by over 1,200 organisations, who between them manage or own $34 trillion, or 15% of the world’s investable assets.

Presently, in the whole of South Asia, there are only three signatories (all in India). This is the same number as in China and Indonesia, meaning that Hong Kong (11) and Luxembourg (14) each have more UNPRI signatories than China, Indonesia, and Saarc put together. While the low sign up rate to UNPRI outside G8 and OECD nations, reflects the organisation’s evolution around the global financial centres of Europe and North America, there are three key reasons why a number of Bangladeshi banks and financial institutions, should already be signatories and active members.

Firstly, some local institutions are already following overlapping or related principles. Indeed, since 2008, via its directive on Mainstreaming Corporate Social Responsibility (CSR), and through its policies on green banking, the Bangladesh Bank has been officially encouraging banks and financial institutions to adopt or follow similar principles.

As an aspirational and voluntary code, with relatively low mandatory fees, there is nothing to stop Bangladeshi financial institutions from signing up to PRI. In fact, its potential benefits in terms of gaining recognition and networking far outweigh the costs involved.

Secondly, Bangladesh can claim a part of one of Luxembourg’s 14 current signatories, the Grameen Crédit Agricole Microcredit Foundation. This not-for-profit organisation registered in Luxembourg, was set up in 2008 by an endowment of 50m euros donated by the French bank Crédit Agricole SA, which is invested to help the foundation encourage microfinance and social businesses around the world.

Thirdly, and most significantly, there is a huge amount of international interest in ethical and responsible business issues within Bangladesh. While policymakers can’t fail to clearly appreciate this in relation to companies and brands directly involved in the RMG industry, it is less widely noticed that many large institutional investors are similarly interested in the country’s development.

After the Rana Plaza disaster for instance, the US-based Interfaith Centre for Corporate Responsibility (ICCR) issued its Bangladesh Investor Statement which by September 2013, had been signed by over 200 other organisations who between them have $3 trillion of assets under management.

The statement appealed to the brands and companies in which signatories invest to, among other steps, join the Accord on Fire and Building Safety stating that: “As investors, we also bear responsibility to enhance the power of the private sector to effect positive change by engaging companies to ensure that human rights remain at the core of their business models.”

Supporters of the Bangladesh Investor statement, who overlap with many of the UNPRI’s 1245 signatories, include large insurance companies and Swedish government pension funds, as well as the core ethical and religious investors which ICCR represents.

For the most part, it can be assumed the analysts who signed this statement are interested primarily in the reputation and supply chains of a few large western brands and retailers in which they hold shares. But to take a flight of fancy, what if it was an equal world, and as global investors these signatories invested assets according to population, so that over 2% of their assets (over $60 billion) were in Bangladesh? Or 2% of the PRI’s $34 trillion …

That’s plenty more reasons for Bangladeshi institutions to sit up and take notice, right? Bangladeshi businesses and financial institutions should be playing just as big a part in participating in developing and shaping international standards of good practice, as they do in trying to meet such standards.

Now, I’ve been around codes of ethics long enough to be ultra conscious that good intentions don’t always lead to good outcomes. Or that a business might be responsible in, say, reducing its greenhouse emissions or improving labour conditions, without having a code of practice on its website, or being signed up to a multi-stakeholder initiative or pressured by its shareholders.

But being realistic is not the same as cynicism. If UNPRI members collectively can’t make a difference by working together on what are after all the key issues of our day, then who can? All the more reason, then, to join them.

The code of practice for opinion-mongers states that one shouldn’t plug a race without tipping a winner. So, I’m going to point people trying to guess which will be the first Bangladeshi  financial institution to sign UNPRI, towards reading the annual reports of BRAC Bank or one of the sharia-compliant institutions.

Brac Bank’s report for example sets as a mission for the organisation to operate under a “triple bottom line” agenda where profit and social responsibility shake hands as it strives towards a poverty-free, enlightened Bangladesh,’’ while the related Brac EPL Investments Ltd was a pioneer in first publishing a Sustainability Report, according to the Global Reporting Initiative guidelines in 2011.

But actually, that’s not the answer. The ultimate answer is actually down to every reader with a bank account, insurance policy or investment fund. As customers, it is up to us to write as consumers to ask our financial institutions to adopt and follow ethical and responsible investment principles.

It’s your money after all. You can influence it. And that includes suggesting that Bangladeshi financial institutions should sign up to UNPRI.

– See more at: https://www.dhakatribune.com/uncategorized/2014/04/04/and-the-first-bangladeshi-fund-to-sign-unpri-is

Bangladesh, Compliance and ethical trading

Investment for a better Bangladesh RMG Industry

Everyone agrees, to sustainably improve the RMG industry increasing investment is necessary to deliver improvements in  productivity and safety.With plenty of multi stakeholder activty on compensation and safety, there is reason to suppose that the case for more investment will grow. http://www.dhakatribune.com/2014/feb/19/when-will-value-bangladeshi-life-go              According to the Economist, buyers have strong economic arguments for investing in such initiatives to improve the RMG sector in Bangladesh  http://www.economist.com/news/business/21588393-workers-continue-die-unsafe-factories-industry-keeps-booming-bursting-seams

There is certainly still good reason to suppose that cutting and running to competitor nations will not remove risks for brands and buyers of poor standards in supply chains. One worry for Bangladeshi businesses and workers however, is that restructuring may pull the ladder for improvement away from smaller factories – even though the nature of the industry and short lead times often builds in a lot of sub-contracting. Squaring this circle is a global problem for the garment sector and one which deserves to be followed with close interest. http://www.thedailystar.net/op-ed/urgency-for-rmg-sector-restructuring-12531

One intriguing post Rana development is growing interest from investment funds in the sector. How this pans out may make a huge postive difference over the next few years  http://www.theguardian.com/sustainable-business/supply-chain-tau-investment-management-regulations-cheap-labor-clothing

Corporate Responsibility, Responsible & Ethical Investment

Is there financial value in ESG?

Deloitte have published a new report “Finding the Value in Environmental, Social, and Governance Performance” which reviews evidence suggesting that environmental, social, and governance (ESG) issues can result in positive benefits and better position a business to mitigate any downside risks from an ESG shock.  

By no means a  definitive answer to the perennial challenge of demonstrating value from ESG commitments  – or the conundrum that there are always companies that thrive in the face of adverse publicity – but even so a good example of the continuing mainstreaming of ESG

Responsible & Ethical Investment

Responsible Investment (RI) must both be mainstream and need the help of more niche ethical investors

Responsible Investment(RI) as it is understood today as an increasingly mainstream expectation – see http://www.unpri.org  or http://www.uksif.orgASRIA etc  – would not exist without generations of active ethical investors using their power as citizens, consumers and investors, to make their points.  Often succeeding in having an impact far beyond their size in raising an issue up the media and policymaker agenda.

The 2007 credit crunch and failures in regulation (or the deliberate absence thereof)  underpinning the contemporary global financial crisis makes it clear that there is still some way to go before the financial services industry meets all the reasonable needs of its customers and beneficiaries (among whom would be most people reading this) when  it invests money on their (our)  behalf.    PMCRreview article Niaz Alam

Hence there is still much to be said for active groups of smaller deeper/ traditional ethical investors who are often the first to raise key ESG issues – and avoid the downsides when risks become more apparent… So even though the common goal of all RI practitioners is to improve impacts against ESG standards across the board and to mainstream good practice, it is perhaps short sighted to dismiss ethical/moral choices as always a niche/minority activity.  The end of 2012 and start of 2013 for instance saw the tax debate originating in the UK spread  globally (after many years of diligent campaigning and being overlooked by much of the media except for Private Eye)

Whilst hugely valuable and influential, ethical choices by individuals, such as choosing an ethical bank account, or buying goods certified as organic or fair trade will almost by definition always at first be a minority choice.  There is also often a moral dimension – who is more useful for the good of wider society, an investor who avoids holding shares in a tobacco company because they do not want to profit from the harm inherent in the product, or the citizen who campaigns democratically for the government to discourage use by raising taxes?   (One answer by the way is that someone could be both.)

In order to get away from such accusations that ethics are an optional or niche factor, some responsible investors are focusing on integrating ethical factors into mainstream investment choices by for example incorporating reference to international human rights law and ILO conventions within their statements of investment principles. For example the Norway Government pension fund (commonly referred to as the Norway Oil Fund and one of the world’s largest sovereign wealth investors), sold over 350m USD of shares in Wal-Mart in 2006 because it was not satisfied with the company’s responses to allegations that its operations may have breached the spirit of international conventions on labour rights and freedom of association.

This approach has gained widespread endorsement with the growth of the UN Principles for Responsible Investment (PRI), an investor-led coalition  that seeks to  “help investors integrate the consideration of environmental, social and governance (ESG) issues into investment decision-making and ownership practices across all asset classes and regions…”  By the end of 2012, assets reported under management by PRI signatories stood at more than $32 trillion USD ( that is to say 32000 billion USD or 15% of the world’s investable assets).

Some fear that Responsible Investment principles – if not adequately implemented and monitored for example with the help of  improved disclosure and transparency (as is indeed now being required by UNPRI,)  may be lost in the wider picture or treated as an optional extra- while others such as UKSIF http://www.thecityuk.com/blog/date/2011/07 argue that it is essential that all investors adopt an RI approach as  sustainable finance is essential and integral to the necessary global transition to a more resilient resource-efficient economy.

Of course, as with all good intentions, in the long run, it is not the words on paper that count so much as how they are put into practice.