Academic Paper Questions Whether Pensions Are Excluded From International Codes, Conventions

(October 21, 2011) — (October 21, 2011) — A new whitepaper by Jane Ambachtsheer, partner and global head of responsible investment at Mercer, has asserted that pensions may be missing in action from international codes and conventions that seek to govern the behavior of corporations.

“The key takeaway for investors is that there are a global set of codes of conduct that have been set for companies, which investors are increasingly using as tools to articulate for companies what their expectations around corporate conduct are,” Ambachtseer told aiCIO. From a risk measurement perspective, these tools are used to measure company performance, and serve as a way for investors to pinpoint both red flags that may be in their portfolios as well as opportunities, Ambachtseer said.

The report said: “The growing global influence of corporations has led to the development of a vast range of norms, codes, and conventions that seek to govern their behavior, focusing on diverse topics from human rights to the environment.” wrote Ambachtsheer, who is also an Adjunct Professor at the University of Toronto, Canada. “The process around creating, ratifying, and implementing norms, codes, and conventions typically involves corporations, governments, and non-governmental organizations, but not investors. While investors increasingly utilize these instruments in several ways, there is a missed opportunity to involve them in their development, implementation, and ongoing governance,” she wrote in the paper titled International Codes and Conventions: Are Pension Funds Missing in Action?, concluding that much work needs to be done to address this ‘investor exclusion problem’ and more formally embed investors as a stakeholder in emerging global governance structures.

According to the whitepaper, while there has been a burgeoning perception that as the global influence of companies has grown, so has the view that companies share in responsibilities traditionally assigned to governments, such as those relating to human rights and the environment. The paper outlines several questions that institutional investors are increasingly considering following the emergence of norms, codes, and conventions, including the following:

1. What is the range of topics covered by these conventions, and to what extent do they extend to investors?

2. What utility do conventions offer investors in terms of creating a framework to analyze and monitor the practices of corporations (and other assets) in a risk / return context?

3. Are international conventions structured to include / address investors, and, if not, should they be?

Explaining norms, codes, and conventions, the paper continued to note that the past five years have been transformational in terms of making “responsible investment” higher in priority within the investment process, with the United Nations-backed Principles for Responsible Investment (PRI) reflecting widespread adoption.