Coalition pushes for greener bottom line

TORONTO • Some of Canada’s largest institutional investors are preparing a fresh push on companies to adopt strategies, risk management and disclosure practices to address the bottom-line impact of environmental and social factors such as the socio-economic impact on communities.

The Canadian Coalition for Good Governance — an umbrella organization whose members, including the Ontario Teachers’ Pension Plan Board, RBC Global Asset management Inc., and Franklin Templeton Investments Corp., manage nearly $4 trillion in assets — is unveiling an eight-point plan on Tuesday.

The plan is intended to guide firms and their boards to develop a structure and practices to oversee management of relevant environmental and social factors.

The “connection to the bottom line” of financial, legal, and reputational impacts is becoming better understood, said Barbara Zvan, chief risk and strategy officer at the Ontario Teachers’ Pension Plan and chair of the CCGG’S environmental and social committee.

“These factors, the material ones, do impact the value of a company,” she said in an interview.

In its new guidebook for companies and directors, the coalition notes that investors have leverage that can be applied to get companies to act in ways that “prevent and mitigate adverse impacts” from environmental issues and social factors such as health and safety of workers and socio-economic impact on communities.

Shareholders can also take “further steps where companies do not make the desired changes,” the group says in the guidebook.

The report stops short of saying investors will sell their shares if companies don’t do enough to disclose or mitigate perceived risks.

Zvan said excluding certain sectors or divesting assets is always a considera- tion for institutional investors, but that Teachers prefers to have a place at the table to help shape corporate culture, strategy, and risk management with companies and their boards.

“Every investor has to make that choice for themselves. At what point do they no longer want to own (an asset),” she said, “We much prefer to engage than divest.”

Earlier this month, Mark Machin, chief executive of the Canada Pension Plan Investment Board, told the Financial Post his pension organization will make a big push this year to develop a “tool kit” to measure the risks of climate change in its acquisition valuations and across its portfolio of investments.

“If we’re not being paid for the risk, then it doesn’t make sense to own them,” he said after the pension management organization released fiscal year-end results for the $356.1-billion CPP fund on May 17. “Others, where we think we’re being paid for the risk, then we’ll continue to own them.”

The Canadian Coalition for Good Governance says there is no “correct” approach to managing environmental and social factors, and that individual companies will have unique situations and strategic courses that will take time to develop.

The broad categories the investor group wants companies to look at through the lens of environmental and social factors include disclo- sure, corporate culture, risk management, strategy, board composition, structure and practices, and incentives. On the last point, for example, firms are urged to include environmental and social metrics and targets in their remuneration framework.

When it comes to disclosure, the CCGG emphasizes financial reporting, noting that the right level of detail, context, and supporting information, as well as metrics, allows investors to make better-informed decisions.

“Boards should have the necessary controls in place ... to provide reasonable verification and assurance of the disclosure,” the CCGG recommends.

The guidebook is being released as some institutional investors are finding themselves under pressure from environmental and human rights organizations that claim they aren’t doing enough to push corporations to focus on the environment at the expense of short-term profits.

This month, a group of 10 organizations including Green Peace, Amazon Watch, Divest Invest Network, and the Australasian Centre for Corporate Responsibility called on Blackrock Inc. to do more to combat climate change. The group applauded Blackrock’s growing investments in renewable energy, but cited Paris Agreement pressure to move more than $1 trillion away from high carbon sectors such as fossil fuels.

“We see Blackrock specifically and asset managers more generally as playing a critical role in this transition,” the letter said.