Sustainable Investment in China | Principle 3: The Importance of Corporate Disclosure

Principle 3 is a commitment to ask investee companies to disclose appropriate and relevant environment, social, and governance (ESG) information, ideally in a systematic manner.

The idea behind Principle 3 is that without adequate disclosure by investee entities, it is not possible to implement Principle 1 (the integration of ESG issues) or Principle 2 (company engagement). Without an adequate level of detail about the ESG factors relevant to an investment, integrating ESG issues into investment decisions is impossible. Similarly, Principle 2 requires that signatories be active owners and engage with companies to address problems that have been identified. If there is insufficient disclosure, investors are unable to target their engagement activities in ways that focus on the most important issues.

Over the last three years, PRI signatories have sent letters to the chief executives of UN Global Compact (UNGC) participating organizations in order to applaud the leaders—those with particularly good practices—and to also challenge the non-conforming companies to submit their sustainability policies and threaten the rescindment of their full participant status if they fail to do so.

In 2009, the PRI conducted its second annual engagement with the UNGC: 44 companies were praised for producing high-quality sustainability reports deemed useful for investors. Recognized companies included China Ocean Shipping Group (COSCO) and the Korea Gas Corporation. A full list of companies can be found here. In addition, 48 percent (50 out of 105) of “laggard” companies in 2009 subsequently submitted their reports. Our 2010 engagement is currently taking place, and investors are in the process of contacting 130 companies.

In March 2009, a survey of PRI signatories and other global partners found seven out of ten major asset managers and institutional investors cited a lack of ESG disclosure as the key challenge to investing in emerging markets. The PRI’s Emerging Markets Disclosure Project was formed as an international initiative to improve corporate ESG or sustainability reporting in emerging markets. The project is also providing additional support to a number of PRI’s engagement clearinghouse activities (which is a web-based intranet providing signatories with a mechanism to share information and proposals on shareholder and other engagement activities they are conducting or would like to conduct with other signatories). For example, all Brazilian companies listed on Bovespa (the Brazilian stock exchange) are collaborating on eradicating slave labor in Brazil.

The work of PRI signatories and other groups to improve corporate disclosure is making an impact: More investors are now integrating ESG into their investment decision-making processes.

For more information, please contact Narina Mnatsakanian at narina.mnatsakanian@unpri.org