Investors achieve greater disclosure of corruption risks

Source: www.ftseglobalmarkets.com

Three quarters of companies targeted in an investor engagement aimed at improving understanding of companies’ anti-corruption risk management have significantly improved their transparency, according to Principle Responsible Investment (PRI).

PRI, a body of investors, believes that environmental, social and corporate governance (ESG) factors affect the long-term performance of investment portfolios. The group, led by F&C Asset Management and Hermes Equity Ownership Services, began engaging with 21 companies across 14 countries in March 2010 to encourage them to demonstrate that they had appropriate anti‐corruption controls.

Each of the 21 companies were selected due to their poor public disclosure of anti-corruption risk management and high levels of corruption risk because of the nature of their businesses. Poor disclosure is often a sign both of companies with cultures where corruption can occur, and of poor risk management.

By early 2013, sixteen companies have improved their performance against the indicators, with ten companies improving their score by four-fold, and the leading company improving its score by six-fold.

“We have seen in recent high profile cases, even if corruption is not prosecuted, the huge reputational and financial damage it can cause to the companies engaging in it,” says Tim Goodman, Associate Director at Hermes Equity Ownership Services. “More than that it siphons value to the corrupt, inhibits fair competition and impedes economic development to the detriment not only of shareholders’ portfolios but of companies’ other stakeholders and wider society.

Christina Hillesöy, chairwoman of the Ethical Council, says, “Anti-corruption has been a key priority area for us for many years since it undermines the legitimacy and sustainability of economic systems and provides huge risks to the companies we invest in. We are glad to see that this joint investor engagement has been fruitful and led to increased company disclosure. We will continue to engage with companies regarding their anti-corruption work.”

Ann Byrne, CEO of the Australian Council for Superannuation Investors, adds: “As long-term investors we have a responsibility to address the impact that bribery and corruption has on investment returns, market volatility and uncertainty in company performance. Companies involved in allegations of corruption and bribery are often characterised by poor corporate governance processes, the failure of internal processes to protect the integrity of stakeholders and an inability to successfully implement and monitor company codes of conduct.”

The findings were released as a group of 12 investors, collaborating through the PRI, work to launch the next phase of their work to engage with companies on anti-corruption issues. The new engagement will target up to 50 firms across a wider range of sectors and countries to better understand their ability to manage and reduce corruption-related risks and their capacity to improve practices and transparency.