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April 22, 2009
European Commission Is Urged to Mandate ESG Reporting by Corporations
    by Robert Kropp

Report from Eurosif recommends regulatory action to increase transparency in corporations and institutional investors, and to enhance the rights of shareowners.


The current global financial crisis was caused at least in part by a focus on short-term profits, inadequate governance by investors, poor regulatory oversight, and misaligned executive incentives, according to the European Social Investment Forum (Eurosif), an association of national social investment forums (SIFs) in Europe.

The crisis also "offers an opportunity to adopt transformational policies that address longer-term global systemic issues," Eurosif asserts in a Public Policy Position Paper related to Sustainable and Responsible Investment (SRI). The paper finds that adoption of enhanced regulations that focus on materially relevant environmental, social, and governance (ESG) information could improve transparency in the capital markets and long-term financial performance.

In the position paper, Eurosif recommends that the European Commission (EC) adopt three proposals that will increase transparency and contribute to a sustainable economy in the European Union (EU).

Eurosif recommends that the EC utilize existing initiatives from such organizations as the Global Reporting Initiative (GRI) and the Carbon Disclosure Project (CDP) to mandate disclosure of ESG data by publicly traded European corporations. ESG data provides investors with information they need to assess long-term risks and opportunities. The effect of ESG information in the hands of responsible investors could lead to better corporate, investment and market performance.

Eurosif also recommends that the EC mandate an EU-wide Statement of Investment Principles for investment funds, accurately describing the extent to which ESG considerations are taken into account in investment strategies. ESG issues affect the performance of companies, and taking ESG issues into consideration is consistent with the fiduciary duty of investors when it impacts profitability.

Finally, Eurosif recommends that the EC ensure greater transparency concerning the rights of shareowners. The EC should adopt measures that allow shareowners to keep control of their proxy voting rights at all times, and enhance communication between institutional investors and the shareowners they represent.

Eurosif and its members expect to have the opportunity to discuss their recommendations with the EC at a roundtable on Sustainability Disclosure organized with the Federation of European Accountants, to be held in Brussels on April 29.

 

 
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