Accordingly, NILGOSC believes that these factors should be taken into account when managing the Scheme’s assets, subject to the overriding fiduciary duty to maximise the financial return on investments. NILGOSC has developed a Statement of Responsible Investment (RI Statement) to outline how such issues are incorporated into its investment practices.
As a means of demonstrating its commitment to responsible investment practices, NILGOSC has adopted the United Nations Principles of Responsible Investment and votes at all company meetings in which it has a shareholding. NILGOSC also engages with companies; directly by issuing engagement letters to UK and other European listed companies, in collaboration with other investors through UN PRI facilitated and other collaborative engagements and indirectly via its Fund Managers.
Responsible Investment (RI) is about recognising that the impacts of corporations on the environment, on workers and on communities can seriously affect the value of investments in them. RI also places a high value on companies’ own good governance.
NILGOSC believes that environmental, social and corporate governance (ESG) issues can affect the performance of investments. Examples of how a company’s ESG practices can have a financial impact may be where poor environmental performance may result in compensation claims and/or costly clean-up measures or where exploitative labour practices may affect a company’s brand, reputation, worker productivity and ultimately its share value.
RI differs from ethical investment, which generally focuses on excluding or including companies from an investment portfolio (“positive or negative screening”). RI, by contrast, involves investors using their shareholder power in the companies they invest in. NILGOSC does this by voting at shareholder meetings and by engaging, both directly and indirectly, with company senior management when ESG issues of concern have been identified. The purpose of voting and engagement is to improve corporate behaviour and to protect shareholder value.
Corporate Governance is the system by which companies are directed and controlled. It deals largely with the relationship between the constituent parts of a company – the directors, the board (and its sub-committees) and the shareholders.
Transparency and accountability are the most important elements of good corporate governance. This includes:
- the timely provision by companies of good quality information
- a clear and credible company decision-making process
- shareholders giving proper consideration to the information provided and making considered
The corporate governance framework in the UK operates at a number of levels:
- through legislation, particularly the Companies Act 2006
- through the Listing Rules, the Disclosure and Transparency Rules and the Prospectus Rules which are made by the Financial Conduct Authority (FCA) as the UK’s securities regulator.
- through the UK Corporate Governance Code and the UK Stewardship Code for institutional shareholders, which is the responsibility of the Financial Reporting Council
- through the Takeover Code, which is issued and administered by the Takeover Panel
What is ESG?
Examples of environmental issues include biodiversity loss, greenhouse gas (GHG) emissions, climate change impacts, renewable energy, energy efficiency, resource depletion, chemical pollution, waste management, depletion of fresh water, ocean acidification, stratospheric ozone depletion, changes in land use, and nitrogen and phosphorus cycles.
Examples of social issues include activities in conflict zones, distribution of fair trade products, health and access to medicine, workplace health safety and quality, HIV/AIDS, labour standards in the supply chain, child labour, slavery, relations with local communities, human capital management, employee relations, diversity, controversial weapons, and freedom of association.
Corporate Governance (G)
Examples of governance issues include executive benefits and compensation, bribery and corruption, shareholder rights, business ethics, board diversity, board structure, independent directors, risk management, whistle-blowing schemes, stakeholder dialogue, lobbying and disclosure. This category may also include business strategy issues, both the implications of business strategy for environmental and social issues, and how the strategy is to be implemented.