What has the EU ever done for Responsible Investment?

Transcription

1 What has the EU ever done for Responsible Investment? Professor Paul Q. Watchman Director of Sustainable Finance, CCP RF 11th November 2016

2 Has the shock of Brexit resulted in collective amnesia about the EU and Responsible Investment? DISCLOSE DIVEST DIVERT What has the EU done to promote Responsible Investment in 40 years? DISRUPT

3 Capital Markets Union European Commission announce CMU expert group to develop comprehensive strategy on sustainable finance (Sustainable Finance Plan for the European Union) CMU barely mentions sustainability, environmental, social or governance. CMU has stepped back from promoting economic growth. Global Witness and Friends of the Earth DISCLOSE DIVEST DISRUPT DIVERT DEMAND

4 EU Role in respect of ESG The EU has acted in ways that have prevented domestic UK initiatives which would negatively impact for instance on, human rights, working rights, consumer rights, the environment and animal welfare. The EU has served to safeguard rights and standards in these areas. DISCLOSE DIVEST DISRUPT DIVERT DEMAND Dr Ian Williams, Brexit: An opportunity to create a more sustainable financial system and Capital Markets Union. (2016)

5 Not Responsible Investment No mention of EU promoting Responsible Investment ECHR (European Court of Human Rights) not the ECJ (European Court of Justice) Large claims not substantiated or explained We are examining RESPONSIBLE INVESTMENT not the role of the EU in respect of protection of legal rights, the environmental or animal welfare DISCLOSE DIVEST DISRUPT DIVERT DEMAND

6 Brexit Risk to Responsible Investment Abolition of the Department of Energy and Climate Change (DECC) Support for fracking Lack of interest in public green finance Watering down UK s commitment to environmental issues, such as climate change, recycling and air pollution Sustainaylitics 2016 DISCLOSE DIVEST DISRUPT DIVERT DEMAND

7 Rowing back on EU Environmental Programmes? Perhaps not mainstream RI but Brexit does put some EU Environmental commitments by the UK at risk Air Pollution is a good example However it was ClientEarth, not the EU, which took the Government to court in 2015 and 2016 for dragging its feet on the Air Quality Directive UK strong opposition to the Accounts Directive

8 EU and Responsible Investment? Sound and fury signifying nothing. Macbeth, Shakespeare

9 EU and Responsible Investment? Markets in Financial Instruments Directive EU ETS EU Sustainable Development Goals EU Corporate Social Responsibility Strategy Reports on Corporate Responsibility

10 EU and Responsible Investment? Continued.. Accounting Directives Timber Regulations Shareholder Rights Directives Proposals, Policies, Reports, Drafts, Goals, Directives Regulations

11 EU RI Leadership? Accounting Directives: Adopted 2014, transposed 2016, to come into force 2017 Large companies to disclose non-financial and diversity information Information on policies risks and results in respect of human rights Anti-corruption Bribery Environmental matters Social and employee issues, including diversity

12 EU RI Leadership? Accountancy Directive 2013: Reporting obligation for large extractive and logging companies on the payments they made to Government

13 EU RI Leadership? Shareholders Rights Directive 2014 Incentivizing institutional investors and asset managers to take account of non-financial matters Companies to engage with institutional investors and asset managers on ESG and other issues of Responsible Investment Council and European Parliament discussion

14 EU RI Leadership? EU to tackle mineral trading linked to financing armed conflict in high risk areas 2014 Voluntary supply chain due diligence In legislative process

15 EU RI Leadership in Capital Markets? Many of the employment protection laws and laws against discrimination predate the UK membership of the EEC Chronically Ill and Disabled Act 1970 Redundancy Payments Act 1965 Equal Pay Act 1970 Unfair Dismissal Act 1972

16 EU RI Leadership v. UN RI Leadership EU ETS European Commission Corporate Social Responsibility Policy UNEP FI UN Global Compact UNEP FI PRI UN Guiding Principles on Business and Human Rights

17 Business and Human Rights Ruggie UNGPs 2011 EU Sustainable Development Goals EU 2016 commitment on business and human rights EU Action Plan on Responsible Business Conduct 2016?

18 OECD National Action Plans on Business and Human Rights UK Netherlands Italy Denmark Finland Lithuania Sweden 21 Member States Missing!

19 EU RI Leadership v. RI Leadership OECD Guidelines for Multinational Enterprises ISO IFC Sustainability Policy EIB Environment and Social Handbook Principles of Responsible Investment Equator Principles Extractive Industries Transparency Initiative Conflict Diamonds Gold Council Thun Group on Human Rights

20 EU RI Leadership v. RI Leadership CORE and the Enlightened Shareholder Directors Duties Stewardship Code UK Pension Funds Code of Practice S&P 500 ESG Index and S&P 500 Environmental & Socially Responsible Index Sustainable Stock Exchanges Initiative

21 Areas of Concern UK Living Wage New Zealand Zero Hour Contracts COP 21 Paris Agreement Climate Change Slavery and Human Trafficking UK Modern Slavery Act 2015 California Supply Chain Act Child Labour Renewable Energy

22 Areas of Concern Corporate and Financial Institutions Governance Directors Duties Bribery and Corruption Pension Trustee Regulation Fiduciary Duties of Pension Fund Trustees Company and Bank Bonuses and Salaries Conduct Costs Shareholders Rights

23 How slow can you go? Time it takes to move from draft to implementation of EU Directives Work to shape EU WEE Draft Directive? EU WEE draft Directive 1998 EU WEE Directive adopted 2002 EU WEE Directive in force 2003 EU WEE Directive transposed by UK 2006

24 Very slow and not very effective WEE Directive amended 2006 WEE Directive amended 2009 WEE Directive amended 2012

25 Carbon Trading EU ETS North America (RGGI) North America (All) Chinese Markets Kyoto Project Credits (JI and CDM)

26 RI Leaders: Integrating of ESG into Investment Decision-making Norwegian Global Fund Norges Bank Sweden AP4 ABP PGGM Caisse des Dépôts CalSTRS CalPERS New York Pension Fund Hermes Environment Agency Pension Fund

27 RI Leaders Carbon Disclosure Project Carbon Tracking Ceres King ShareAction Al Gore and David Blood Mercer AVIVA Freshfields John Kay ClientEarth

28 Will Brexit Trigger a Race to the Bottom? UK is home to Europe s largest SRI market, Eurosif PRI adopted by investors managing $45 trillion assets globally based in London Many of the Global Thought Leaders on RI based in UK Pension Fund Leaders, such as Hermes, based in UK Pension Fund Leaders in EU and outside EU but not EU

29 Conclusion No reason for BREXIT to be a race to the bottom Opportunity for UK to lead RI revolution This will happen by working with the investment industry and governments globally not through EU policy Not complacent but not anxious Carpe Diem