Simply Requiring Explanation May Make the Difference in CSR

Sigrid Rausing, founder of the Sigrid Rausing Trust, reports that a UK ethical investment research body, EIRIS, launched a report on a FTSE100 mining company, Vedanta Resources, at a seminar attended by some of the UK’s leading fund managers.

The company has come under international scrutiny for its plans to mine bauxite in the Indian state of Orissa. Responsible investors have been engaging with the company, and some of these have divested because of concerns about the lack of progress in addressing human rights issues.

The Norwegian Government’s pension fund was one of the first to disinvest on ethical grounds in 2007, coinciding with a campaign by several NGOs. In September 2009, the UK Government upheld a complaint lodged against Vedanta under the OECD Guidelines for Multinational Enterprises. Others began divesting and

Amnesty International published a report stating that Vedanta’s plans to mine bauxite in Orissa’s Niyamgiri Hills, considered sacred by the indigenous Dongria Kondh people, will threaten rights to water, food, health and livelihood. Still others have taken the decision to vote against Vedanta’s report and to oppose the reappointment of certain directors at the company’s AGM this week.

Indian governments had approved permits and even participated with the company. However, they now announced an investigation into rule violations and the likely impacts on the Dongria Kondh people.  Delays have cost Vedanta $90 per ton. According to Rausing:

This may account for the willingness of more investors to signal their disapproval of the company’s handling of human rights and environmental issues by voting against the Board’s resolutions.

Of course, money often brings investors closer together but Rausing argues the new UK Stewardship and Corporate Governance Code offers a new motive to coalesce around ethical issues, since it requires UK institutional investors to monitor the companies in which they invest, make public their policy on stewardship and, if they fail to do so, explain why. (The Vedanta case: A CSR wake-up call for sleeping investors, Ethical Corporation) Apparently, simply requiring explanation gets investors to think about where they should take a stand… certainly a positive step that should be adopted by US investors, whatever their position. (I generally favor engagement over divestment.)

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