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. 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. 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.

The following text and figures are excerpts from an article of this same title in the Fall 2011 issue of the Rotman International Journal of Pension Management. The full article includes more information about specific international codes conventions, successful investor engagements focused on codes and conventions (specifically, the UN Global Compact), and mechanisms for addressing codes and conventions in the context of investments (these include fostering stewardship, avoiding investments that violate codes and conventions, and developing risk management and alpha generation strategies). 

Conventions and Investors

In 2010, La Caisse de Dépôt et placement du Québec undertook to review their Policy on Responsible Investment¹. As part of this project, they sought to identify the range of international codes and conventions that exist and to explore their relevance and applicability to institutional investors. Among the priority areas for consideration were conventions on anti-personnel mines and cluster munitions. The Caisse was not alone in prioritizing a review of their investment exposure in this area, as it has been an explosive subject elsewhere². 

Williams and Conley (2005) emphasize 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. A survey of CEOs by Accenture and the UN Global Compact (Lacy, Cooper, Hayward, and Neuberger 2010) reaffirms this view: 93% of respondents believe that sustainability issues should be considered at the Board level.

To translate this broadening acceptance of extended corporate responsibility into policy and practice, a plethora of norms, codes, and conventions have emerged. These can be distinguished into two groups: official international treaties (which are legally binding) and “soft law” or voluntary codes. In general, treaties are made by and apply to states, but governments can create legislation which translates a treaty into domestic law to apply to its citizens and corporations. Soft law codes can be developed by, and targeted to apply to, non-state entities.

From the perspective of institutional investors, the emergence of these norms, codes, and conventions raises several questions, such as:

1. What is the range of topics covered by these conventions, and to what extent do they extend to investors?
   
2. Even if they are not legally binding, do these conventions represent a moral guiding framework for institutional investors and the members and beneficiaries they represent?
   
3. 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?
   
4. What mechanisms exist for investors to utilize conventions in their investment approach?
   
5. Are international conventions structured to include/address investors, and, if not, should they be?
   
6. What additional work would need to be undertaken to reach a satisfactory conclusion to the above questions?

Please read the full article for the answers to these questions. 

This is an area which has received little attention to date but offers great opportunity for the future. It will be an area of focus for us in 2012 – please contact us if you would like to discuss this.

Footnotes