Transparency

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Transparency

  1. 1. Transparency & Corruption A Shareholder View The Global Compact Policy Dialogue Karina Litvack ISIS Asset Management Ministry of Economy, Finances and Industry Paris 26-27 January, 2004
  2. 2. Outline <ul><li>Why are shareholders involved? </li></ul><ul><li>Transparency, Corruption and Shareholder Value </li></ul><ul><li>Why Equator Principles and EITI interest shareholders </li></ul><ul><li>Equator Principles vs EITI </li></ul><ul><li>Next steps: how can investors contribute to their success? </li></ul>
  3. 3. Why Shareholders? <ul><li>ISIS Asset Management: </li></ul><ul><ul><li>€ 90 billion Funds Under Management* </li></ul></ul><ul><ul><li>Global investor </li></ul></ul><ul><ul><li>Long-term holdings: Pensions & Life Assurance </li></ul></ul><ul><ul><li>5 million individuals (retail clients and pensioners) </li></ul></ul><ul><ul><li>Governance specialist: shareholder dialogue </li></ul></ul><ul><li>Growing activism of investment community </li></ul><ul><ul><li>Governance scandals </li></ul></ul><ul><ul><li>Slide in share prices </li></ul></ul><ul><ul><li>Client and regulatory pressure to ‘mind the store’ </li></ul></ul><ul><li>Engagement makes us better stock pickers </li></ul><ul><ul><li>* As at 31.12.04 </li></ul></ul>
  4. 4. Transparency, Corruption & Shareholder Value <ul><li>Why are shareholders involved? </li></ul><ul><li>Not so long ago, we looked the other way: </li></ul><ul><ul><li>“ The share price went up. Next question?” (Bernie Ebbers) </li></ul></ul><ul><li>… but then we got burnt </li></ul><ul><li>Marconi, Enron, WorldCom, Parmalat et al </li></ul><ul><li>Sarbanes-Oxley, UK Combined Code </li></ul>
  5. 5. Equator Principles interest shareholders because... <ul><li>Doing nothing was not an option: </li></ul><ul><ul><li>Default risk </li></ul></ul><ul><ul><li>Consumers: Citigroup “the most destructive bank in the world”; Hollywood </li></ul></ul><ul><ul><li>Shareholders: </li></ul></ul><ul><li>“ Respected global banks [..] are not answerable to the shareholders of their customers, but earn lucrative fees. They have been involved in many of the best-known corporate scandals, in America as well as Europe. Arguably, their very presence has helped to reassure investors and rating agencies. In future it should count for less.” </li></ul><ul><li>The Economist, 18 Dec ‘03 </li></ul>
  6. 6. Equator Principles interest shareholders because... <ul><li>On the plus side... </li></ul><ul><li>It is an initiative by banks, for banks, with teeth </li></ul><ul><li>Credibility: association with recognised IFC standards </li></ul><ul><li>Rapid take-up: critical mass, de facto standard </li></ul><ul><li>However: They have teeth, and they are sharp, but will they bite? </li></ul>
  7. 7. Equator Principles <ul><li>Investors can help, before and after, through </li></ul><ul><li>Stakeholder engagement </li></ul><ul><ul><li>Dialogue: Citigroup, JP Morgan, Morgan Stanley... </li></ul></ul><ul><ul><li>Benchmarking Study of Environmental Credit Risk </li></ul></ul><ul><li>Pre-launch consultation </li></ul><ul><li>Dissemination and recruitment </li></ul><ul><li>...but focus on depth over breadth, implementation </li></ul><ul><li>Engagement with bank customers </li></ul>
  8. 8. Equator Principles: The Fault Lines <ul><li>Extension to other lending operations – esp. underwriting </li></ul><ul><li>Inconsistency between signatories on: </li></ul><ul><ul><li>Interpretation of clauses and safeguards </li></ul></ul><ul><ul><li>Project categorisation </li></ul></ul><ul><ul><li>Monitoring </li></ul></ul><ul><li>Training and use of consultants </li></ul><ul><li>Regional syndication markets vs. global standards </li></ul><ul><li>Anti-competititve behaviour: informality, yet pressure to formalise </li></ul><ul><li>Export Credit Agenices: big role in facilitating cross-border credits </li></ul>
  9. 9. Equator Principles <ul><li>Investors can help, before and after, through </li></ul><ul><li>Stakeholder engagement </li></ul><ul><ul><li>Dialogue: Citigroup, JP Morgan, Morgan Stanley... </li></ul></ul><ul><ul><li>Benchmarking Study of Environmental Credit Risk </li></ul></ul><ul><li>Pre-launch consultation </li></ul><ul><li>Dissemination and recruitment </li></ul><ul><li>...but focus on depth over breadth, implementation </li></ul><ul><li>Engagement with bank customers </li></ul>
  10. 10. EITI <ul><li>Investors’ Statement on Transparency in the Extractives Sector </li></ul><ul><li>$3 trillion, 38 institutions support EITI </li></ul><ul><li>“ It is thanks to the active involvement of all parties, including both the businesses operating on the ground and the capital markets that fund them, that we will succeed in making the EITI achieve its goals. Better openness and accountability are essential to securing the stability and prosperity that the developing world needs, and on which our mutual business success depends” – Tony Blair </li></ul><ul><li>“ This initiative is good for business, and it is good for shareholders” – Howard Carter, ISIS </li></ul><ul><li>Investors can push openly where extractive companies cannot </li></ul>
  11. 11. Lessons & Next Steps <ul><li>EP are driven by banks; EITI is driven by ‘somebody else’ </li></ul><ul><li>EP have an institutional host: </li></ul><ul><ul><li>IFC safeguard policies: convenient, credible, dynamic </li></ul></ul><ul><ul><li>EITI needs that role to be filled </li></ul></ul><ul><li>EP will force a realignment in lending practices: effective conditionality </li></ul><ul><ul><li>That leverage is absent from EITI </li></ul></ul><ul><li>Financial leverage counts: </li></ul><ul><ul><li>EP lenders hold the cards, within limits, through strong leadership and ‘virtuous’ collusion </li></ul></ul><ul><ul><li>Extractive companies lack this leverage </li></ul></ul>
  12. 12. Important Notes <ul><li>Issued by ISIS Asset Management plc which is authorised and regulated by the Financial Services Authority (FSA). This document has been produced for information only and should not be construed as investment advice. </li></ul><ul><li>Past performance is not necessarily a guide to future performance. Stock markets and currency movements may cause the value of investments and the income from them to fall as well as rise and investors may not get back the amount they originally invested. </li></ul><ul><li>Where investments are made in emerging markets, unquoted securities or smaller companies, their potential volatility may increase the risk to the value of, and the income from, the investment. </li></ul><ul><li>All sources ISIS Asset Management plc unless otherwise stated. www.isisam.com. </li></ul><ul><li>ISIS Asset Management is registered in Scotland. The Registered Office is One Charlotte Square, Edinburgh, EH2 4DZ </li></ul>

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