In December 2004 an article published by Independent Newspapers Ireland Ltd high
ID: 2427572 • Letter: I
Question
In December 2004 an article published by Independent Newspapers Ireland Ltd highlighted the following products that The Rough Guide to Ethical Shopping believes the public should be aware of before buying:
Beverages: Maxwell House. One of the thousands of familiar brands – Bird’s, Jacobs, Ritz and Toblerone and others – owned by tobacco giant Philip Morris of Marlboro cigarette fame, which recently changed its name to Altria.
It denies to this day that smoking is addictive, was fined for failing to disclose political donations and was one of George Bush’s largest corporate campaign contributors.
Clothing: Nike Trainers. Nike is said to have petitioned the Indonesian government for exemption from the minimum wage and has been accused of lying about labour conditions at its contractor factories.
According to Sweatshop Watch, an average Nike worker would need to put in 72,000 years of work to receive what Tiger Woods gets for one five-year contract to publicise the brand.
Food: Tiger Prawns. Hugely popular now-a-days in restaurants and supermarkets, tiger prawns are mostly raised in man-made pools in Bangladesh and the Philippines.
It takes 50,000 litres of water to produce a kilogram of prawn meat, and the chemical additives to promote rapid growth ends up polluting the surrounding farming land.
People are routinely displaced to make way for these farms. Rape and murder have been reported in some cases.
Sport: Snooker Cues. Thousands of snooker cues are made every year using wood from the Indonesian ramin tree. The ramin, which is also used for furniture and window blinds, is a rare and endangered tree listed under the Convention on International Trade in Endangered Species, but continues to be logged illegally at an alarming rate.
a) Are standards or guidelines needed to disclose the social and environmental information supplied in this article?
[5 Marks]
(b) Are the definitions of ‘assets’ and ‘liabilities’ in the conceptual framework appropriate to social and environmental accounting? If not, how should they be expanded?
[5 Marks]
(c) Is the concept of materiality relevant to social and environmental reporting?
[5 Marks]
(d) Does the provision of environmental performance information and advising on control aspects of environmental management systems fall within the core skills of accountants?
[5 Marks]
Explanation / Answer
1.SRI and Corporate Governance are logical extensions of our investment philosophy and process. We are long-term investors supporting quality companies with excellent management teams in niche markets. Several years ago we began to include SRI and Corporate Governance criteria in our selection process. We have since become signatories to the Principles of Responsible Investing, an investor initiative in partnership with UNEP Finance Initiative and UN Global Compact. The PRI initiative uses the acronym ESG (Environmental, Social and Corporate Governance) to describe a range of SRI issues. Their six main principles are as follows:
we will incorporate ESG issues into investment analysis and decision making processes
we will be active owners and incorporate ESG issues into our ownership policies and practices
we will seek appropriate disclosure on ESG issues by the entities in which we invest
we will promote acceptance and implementation of the Principles within the investment industry
we will work together to enhance our effectiveness in implementing the Principles
we will each report on our activities and progress towards implementation
Further details can be found at www.unpri.org.
SRI
We do not have specialised SRI funds, or funds with the label “SRI”, but all companies in which we invest go through a SRI screening process. This is performed by our team of in-house analysts with the help of outside sources, and is discussed during the extended meetings we hold with management. SRI compliance is included in our qualitative checklist. The companies are assessed on three main criteria:
Social (Corporate Governance, Community, Health and Safety);
Environmental (Pollution, Energy, Waste Management);
Ethical (Alcohol, Human Rights, Gambling, Military Regimes).
In most cases, unless a company is involved in the controversial activities outlined in point 3 above, companies are not excluded from our research but invited to reach better standards of social responsibility. Additionally, our SRI screening can be tailored for clients with specific requests and for segregated mandates.
As part of our investment process we meet the top management of companies and the middle managers in charge of operations. If necessary, we make suggestions on ways to improve internal policies. It is not our role to dictate but we can help companies think about the impact of their business in the context of wider SRI issues. If a company refuses to do so, or procrastinates about improving its policies and operations, we may then decide not to invest or to pull out as shareholders.
Corporate Governance
In our view companies that promote good corporate governance and that adopt a socially responsible attitude tend to be companies that offer above average long-term growth prospects. Good corporate governance and SRI aid good long-term performance for our clients (and for us, as we invest in our own funds). Some of our clients are charities and pension funds which also share Montanaro’s investment philosophy and SRI commitment. We therefore aim to promote good standards of corporate behaviour wherever possible, aided in this by having close and regular contact with the management of the companies we invest in.
We have adopted principles from the International Corporate Governance Network (ICGN):
Corporate objectives-shareholders’ returns
Corporate boards
Disclosure and transparency
Corporate citizenship and stakeholder relations
Shareholders’ voting rights and remedies
Corporate remuneration policies
Audit
Corporate Governance implementation
Ethical conduct of business
Every company that Montanaro invests in is subject to a rigorous in-house research programme and to on-going reviews. Montanaro has consistently been a supportive and long-term investor. Meetings, typically one on one, take place regularly with the management of our investee companies. These meetings help us to develop strong and open relationships. Sound Corporate Governance is considered important: we believe that good governance will help create and enhance shareholder value and forms a key part of the due diligence process and the qualitative checklist. Qualitative issues include:
The Business