OPINION: Hot Issue - Should charity investors be active in firms' governance?

Under a proposed code of practice for institutional investors, charities could expected to vote at company annual general meetings and take a stance on issues such as board composition and directors' pay. But some in the sector believe this could prove a time-consuming distraction for many organisations

Simon McRae, corporate policy co-ordinator, Friends of the Earth - YES

As pension fund members, we are also part owners of companies and so we should use our influence to ensure companies behave in an ethical and responsible manner. Friends of the Earth has its own ethical pension fund which invests in companies which are seen as being more responsible for their social and environ-mental impacts.

Of course, like many non-government organisations, we do not have sufficient funds alone to influence company behaviour. Even combined with other charities and NGOs, our funds are easily dwarfed by most local authority and company pension funds. However, by working together with these investors, we can exert influence.

Last year, Friends of the Earth combined with major investors to file a shareholder resolution challenging the risk management and ethical behaviour of Balfour Beatty and its involvement in the Ilisu Dam in Turkey.

Balfour Beatty withdrew from the project. But this example is one of the few successes. Most investors are reluctant to attack the companies they have invested in.

One of the great barriers to making companies more accountable is the state of company law. Under UK legislation, directors are not responsible for their company's ethical, social or environmental impacts. This makes them reluctant to deal with these issues, regardless of investor pressure.

Friends of the Earth has joined with a coalition of unions, development, human rights and environmental NGOs to sponsor a corporate responsibility bill which will address these deficiencies in company law. Such a framework for company law would allow investors, including us, to measure corporate behaviour and hold companies to account.

John Rogerson, head of investments, Charities Aid Foundation - NO

I was tempted to answer "yes" and for the few largest charities with significant investment clout, that might be the right answer. But most charities have limited resources and need to focus on achieving the charity's objectives.

Engaging in an extensive debate with individual companies about their governance would be a time-consuming distraction. Yet charities do have to recognise damage can be done to a charity by being invested in companies which then behave inappropriately.

The answer to this conundrum is to invest in a fund with right kind of investment objectives - that is, with a suitable ethical or socially responsible element to the investment policy. Those who run these funds will then take on the strain of appropriate engagement with companies to improve their policies and governance framework, and large investment houses investing billions have much more muscle with companies than most charities will ever have.

Charities therefore need to recognise the issue of company governance, and deal with it. For most this should be done through their investment policy, not by playing a larger role directly themselves.

Les Jones, deputy chief executive, WWF-UK - YES

I firmly believe that charities should be leading the way in company governance. By investing in and working with companies that are aware of the wider impact of their actions, charities can help to move the business community towards a more responsible future.

WWF-UK recognised the importance of this when we recently revised our investment policy with a strong focus on engagement with companies.

Charities should be working with companies to develop and implement more sustainable business practices through their day-to-day management. For example, at BP's AGM this year, WWF-UK used its shareholder status to lay down a special shareholder resolution. We asked BP to disclose how it minimised the environmental risks caused by its business and 11 per cent of the shareholders voted for it.

Individual charities should be concerned with company governance in line with the charity's own mission and objectives. At WWF-UK, we aim to invest in companies that enhance the environment for the benefit of present and future generations.

Charity investment should be about more than monetary return. It is a valuable opportunity to enhance company governance.

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