Global Policy Forum

By Jason Topping Cone

Institutional investors need to look beyond producing the highest return for their investors. In a "capital starved world", these financial institutions have the clout to demand for corporations to clean up their act in such areas as worker's rights, human rights and environmental standards.

That was the message John Sweeney, President of the American Federation of Labor and Congress of Industrial Organizations (AFL-CIO), expressed as he spoke to leaders of major pension funds and institutional investors from 24 nations at the International Corporate Governance Network's (ICGN) sixth annual meeting. The institutional investors that are members of the ICGN — which includes the College Retirement Equities Fund (TIAA-CREF) and the California Public Employees Retirement System (CalPERS) — that attended the meeting held at TIAA-CREF's headquarters in New York City, by conservative estimates, manage $8 trillion in assets according to Peter Clapman, Vice President and Chief Counsel, Investments at TIAA-CREF.

"The major institutions operating in the global capital markets," said Sweeney. "shape the world's economic and political terrain. As institutional investors, you have tremendous power to make and break individual lives — even entire communities, industries, and countries."

According to the Social Investment Forum, an estimated one out of every seven dollars under investment in the US — more than $2 trillion — is now actively involved in the corporate social responsibility movement. The capital is invested in companies that meet certain criteria such as companies that ensure certain environmental or labor standards.

The president of the 13 million member AFL-CIO emphasized the outcome of his organization's campaign against Goldman Sachs support of the Chinese Government owned PetroChina — a state controlled Chinese oil company — going public on US markets. PetroChina had been implicated in human rights, worker rights, and environmental abuses in China, Tibet and the Sudan according to Sweeney.

According to Sweeney, pension funds and other institutional investors with more than $1 trillion in assets decided they would not invest in PetroChina as result of the campaign. "The punchline is that even though Goldman Sachs had prepared the markets for a $10 billion offering," said Sweeney. "In the end they couldn't even sell $3 billion worth of PetroChina to the global markets."

Sweeney was emphatic about not imposing US labor and environmental standards on other nations, but rather corporate governance and social responsibility should involve shared values and best practices. According to Sweeney, the Organization for Economic Cooperation and Development's (OECD) Corporate Governance Principles are a product of such a dialogue among unions, governments, companies and nongovernmental organizations.

"The goal of good corporate governance is generating sustainable value on a global scale," said Sweeney. "And in that sense we can all without apology pursue the enrichment of our funds. But if corporate governance movement becomes merely a vehicle for enriching the small portion of humanity that currently holds significant investment capital, then it will fail in the face of the opposition of the majority of the world's people."

Sweeney was not alone in his calls for demanding better human rights and environmental standards from corporations. Many of the speakers at the conference noted how corporations need to be and are being held more accountable for not just the profits that appear on their balance sheet, but how they are conducting business to earn those profits. "If we were listening to Shell Oil or BP," Tim Smith, Director of the Interfaith Center for Corporate Responsibility, which is made up of 275 Protestant, Catholic and Jewish institution including pension funds with a combined worth of more than $100 billion, told The Earth Times. "They would say they view the next century as a century where they are going to be held accountable for the environment by many stakeholders. You don't have to sell them environmental responsibility, as a key corporate value. Whether they perform according to what they say is a key value is something different. But they are agreeing that they have to pay attention to the environment."

Corporate governance and social responsibility, particularly improving labor standards, can play an important role in bridging the economic gap between the developing and developed world according to Stipson Nestor, Head of Divison of Corporate Affairs at the OECD. "General corporate governance is an extremely important in addressing the poverty and development issue," Nestor, told The Earth Times. "In developing economies corporate governance, is key for helping to change the distribution of wealth."

"The private sector is the driving force for development," added Nestor. "In 1980 more than 80 percent of global capital flows were sovereign flows, relating to goverment to government funding. Today this is less than 18 percent. The rest is private. The way the private sector allocates and monitors its money is crucial for the development debate. The funds will come from there, they will not will come from the one percent level of official development assistance (ODA)."

According to the 2000 Human Development Report, ODA from the OECD member countries to developed countries totaled $51.888 billion in 1998 compared to foreign direct investment (FDI) in that same year which amounted to $600 billion. However, only $3 billion of the FDI went to the 48 least developed countries. "They (corporations) might get away a little longer with ignoring wider issues such as labor rights and the environment," Christian Stenger, Managing Director of DSW Investments, Germany's largest mutual fund with assets of more than $81 billion told The Earth Times. "But you'll be caught sooner or later."

FAIR USE NOTICE: This page contains copyrighted material the use of which has not been specifically authorized by the copyright owner. Global Policy Forum distributes this material without profit to those who have expressed a prior interest in receiving the included information for research and educational purposes. We believe this constitutes a fair use of any such copyrighted material as provided for in 17 U.S.C íŸ 107. If you wish to use copyrighted material from this site for purposes of your own that go beyond fair use, you must obtain permission from the copyright owner.