As institutional investors, we are mindful of the risks and responsibilities
our investee companies face when they operate or have business relationships
in countries governed by repressive regimes. Experience shows that
companies operating in such environments are exposed to extraordinary
business risks including:
· widespread public condemnation and attendant reputational
damage, resulting from sanctions, boycotts or public campaigns by
customers, governments, international bodies and non-governmental
organisations;
· poor staff safety, threat of asset expropriation, pervasive
corruption and other political risks inherent in operating in a
highly volatile environment;
· the possibility of being penalised in a democratic environment
by the new government(s);
· loss of confidence and subsequent action by shareholders.
Given the above, we wish to inform the companies in which we invest,
and those in which we may wish to invest in the future, that we
have grave concerns about companies with operations or business
relationships in Myanmar (Burma).
Our concerns have been raised by the continuing presence of a military
dictatorship, which came to power as a result of a military takeover,
and the continuing scale of flagrant human rights and other abuses.
We are mindful of the influence of foreign direct and indirect investment
provided by companies, whose shares we own, and are concerned that
this may play a role in sustaining the current military regime.
While we acknowledge the efforts made by several foreign companies
to have a positive impact through constructive engagement, we are
concerned that many of the risks identified above still remain.
Where companies do choose to invest or have business relationships
in Burma, we call on them to justify their involvement in the light
of the risks that such activity imposes on shareholders. In particular,
we want to be confident that directors have fully considered the
risks and, at very least, have established effective policies and
procedures systems for managing them. Specifically, we think it
is incumbent on such companies to:
· carry out and publish independently verified social impact
assessments to ensure accurate understanding of the risks they face
including those relating to human rights abuses and corruption;
· establish effective policies and procedures for managing
these risks including commitments to promote international human
rights and combat corruption within company operations and the wider
local and national community;
· seek to maximise the positive impact of their actions through
collaboration with other companies and respected organisations;
· provide detailed and independently verified reports on
their performance against these policies;
· ensure that these matters are regularly reviewed by the
Board and disclosed in the Annual Report.
Companies should also satisfy themselves that joint venture and
other business partners are taking the above steps to avoid risk.
We recognise and are re-assured by the fact that some companies
are already undertaking some of these activities. Equally, where
companies are not meeting these standards, they expose themselves
to risks of critical shareholder and stakeholder action and resolutions.
As investors, we would like to support management in achieving best
practice on these issues and so urge companies ensure that they
follow the approach outlined above.
Annex 1
· Ensuring that state agencies known or alleged to have
committed human rights abuses are not contracted to work in the
company's operational area.
· Ensuring that contracts with state agencies providing security
make explicit the human rights obligations the host government has
assumed under the International Covenant on Civil and Political
Rights and other humanitarian norms. Where possible, it would also
be good practice to make public such contracts, with the exception
of operative details that could jeopardise individuals' safety.
· Urging investigation and prosecution when security personnel
protecting a company's operation are alleged to have committed human
rights abuses, and expressing public disapproval of investigating
authorities where investigations are not pursued and cases are left
unresolved where the evidence supports appropriate legal action.
· Investigating supply chains, including sub-contracting
structures, to determine whether the ultimate source of products
is Burma. Where products are sourced from Burma, supply chains should
be independently verified as complying with internationally accepted
labour standards.
· Ensuring that manufacturing operations inside Burma are
not joint ventures with the military or its associates by establishing
procedures to assess the probity of contracting organisations, including
procedures for both excluding them from potential contracts and
reinstating them if their behaviour warrants it.
· Ensuring that capital is disbursed in a transparent and
accountable way, into accounts that operate within international
accounting standards.
Questions and Answers on Burma Statement
Q1: Why only Burma, what about Sudan, Nigeria, Colombia etc?
There is no doubt that there are other countries with similar
problems, but the combined issues within Burma taken together
make a uniquely compelling case for action:
This statement is specifically directed at Burma but the Group
believes that the same principles of best practice and risk management
can and should be applied to all countries with repressive regimes.
Unlike other countries, Burma has a democratically elected government,
which has been denied power by the military junta. The country's
elected representatives, led by Aung San Suu Kyi, have called
for divestment from Burma. Although we are not calling for divestment,
as a group we hope to reduce the negative impacts of foreign investment,
and reduce the risks to the long term profitability of the companies
we have shares in.
The International Labour Organisation (ILO) has accused the regime
of crimes against humanity, because of the pervasive and systematic
use of forced labour in Burma. As a result, the ILO has called
on all member governments, workers associations, and employers
associations to review their relations with Burma. This call is
unprecedented in the history of the ILO. We are responding by
reviewing our relationship with Burma through the companies we
currently invest in or may invest in.
Companies investing in Burma are at greater risk of boycott campaigns
and other forms of reputation damage than those operating in other
'problem' countries. There is a long list of multinationals that
have pulled out of Burma because of public campaigns or human
rights issues. These include Ericsson, Heineken, Carlsberg, Levi
Strauss, Apple, Reebok, Liz Claiborne and many more. Public campaigns
against companies currently in Burma continue to proliferate.
In recent months Sara Lee (US), Fosters (Australia) and Kvaerner
ASA (UK/Norway) have pulled out of Burma, following public pressure
from human rights groups.
Q2: What if companies simply ignore this statement? What teeth
does it have?
The statement is backed by institutional investors that may ultimately
have the power to remove financial support for companies that
fail to take steps to manage risks posed by investment in Burma.
While the institutions supporting this statement are not calling
for divestment, a company that fails to act responsibly to mitigate
risks may lose shareholder confidence. The Group together currently
represents over £350 billion in funds under management so
there is a huge incentive for companies to take heed of the statement's
recommendations and act accordingly.
Q3: Energy sector companies in Burma simply won't be able to
implement the good practice suggestions in your statement (because
of the political situation there) - so what do you suggest they
do about that?
The reality is that we don't actually know what change is possible,
if any. Hopefully most of the companies in Burma will start to
engage in a systematic manner with the government. And that is
why we think it is worthwhile for investors to engage systematically
with the companies in which they invest to encourage this activity.
What we do know is that some companies are doing more than others,
and as expectations change, more will become possible.
Companies operating in the energy sector can implement most of
the recommendations made in the statement. Certainly the principles
outlined in the main section of the statement are not beyond the
reach of energy companies. While energy companies face particular
problems with regard to security for their operations (i.e. not
using military) or operating in joint contracts with the military,
the statement does not call for all companies to immediately desist
from business if they do have involvement in these areas. The
appendix does go further to suggest the most serious problems
for companies in Burma and how they can be dealt with, but we
expect this to be a progressive change and implementation procedure
and we will be learning from corporate experience as this initiative
develops.
Q4: What boundaries, if any, do these principles push? What value
do they give beyond other voluntary codes?
These principles are similar in spirit to international standards
on corporate responsibility promulgated by inter-governmental
organisations such as the UN, ILO and OECD. However, they give
more detailed guidance that is specific to Burma and other countries
with particularly poor human rights conditions thus acute business
risks. The statement will reinforce the importance of companies
adopting best practice as a way of reducing reputation and other
forms of risk. What makes this statement different from other
voluntary codes is that it is drawn up and backed by significant
institutional money. The focus is not only on acting responsibly
to avoid human rights and environmental abuses in Burma, but also
highlights the companies' responsibilities to their shareholders.
Q5: Would the implementation of these principles eliminate the
risks to businesses outlined in your statement?
Companies operating in Burma may continue to face business risks
even if they implement the principles outlined in the statement.
For example, one possibility is that the democratically elected
government led by Aung San Suu Kyi may yet become the ruling party
in the future, and may not recognise business agreements made
with the military regime - posing a significant financial risk
for companies investing in Burma. In addition, some non-governmental
organisations and pressure groups are opposed to any kind of investment
in Burma, so there is a high probability that any company operating
in Burma, no matter how responsibly they manage their operations,
will be the target of negative news coverage and campaigns. There
are risks that corporate management will have been taken on board
alongside the benefits. Nevertheless we think it is likely that
a company that seeks in good faith to implement these guidelines
will be in a much stronger position vis-à-vis these risks.
Q6: Have any of the points of good practice been implemented
anywhere else?
A number of companies have undertaken very comprehensive and
effective strategies for monitoring and implementing best practice
in countries with 'problem' governments. Some of the leaders in
this field have been the two oil giants - BP Amoco (Colombia)
and Shell (Nigeria). Both companies were accused of complicity
in human rights abuses for business involvement in countries governed
by repressive regimes, and both companies improved their management
of social and environmental impacts, through changes in their
policies and practices.
There have been other joint initiatives involving various institutional
investors in the past. A number of investors, including many of
those endorsing this statement, engaged with GlaxoSmithKline on
its approach to access to essential medicines in the developing
world, on the grounds that the company faced substantial reputation
and core business risk from calls for the relaxation of international
patent protection. GSK said that shareholders were a significant
influence in getting the company to address this issue more effectively.
In addition, shareholders regularly present resolutions requesting
companies to abide by international human rights standards and
to report on measures taken in this direction. (e.g. such resolutions
were presented this year at Citigroup - specifically concerning
Burma, Colgate-Palmolive, DuPont de Nemours, Home Depot, Philip
Morris, P&G, WalMart, Campbell Soup, Microsoft.)These resolutions,
although not always successful, do receive an increasing number
of votes from year to year and show that many shareholders are
aware of how important it is for companies to manage social and
environmental risk.
Q7: What is 'significant' risk, and what is 'significant' presence?
Obviously some companies have greater impacts than others (e.g.
energy companies involved in extraction as oppose to retail/distribution
of products). Clearly some companies face greater reputation or
other risks. For example some companies may have a greater number
of employees in Burma, pay larger taxes to the government or may
be directly involved in some way with the military in its business
operations. However, any company, no matter how significant its
business involvement in Burma will be providing support, either
directly or indirectly, to the military government. Companies
should assess the related risks and take steps to minimise them.
Where companies do choose to continue their involvement in Burma,
they should adopt responsible business practices so as not to
contribute to or further perpetuate human rights abuses in the
country.
Q8: What about a company that has a tiny proportion of its international
business in Burma, where the financial risks are likely to be
minuscule?
The Group is not calling for divestment but expects all companies
to take these guidelines into account. For some companies, their
involvement may be so small that only some of the guidelines would
apply to them. (See above answer)
Q9: Are you going to persuade other funds to sign up? Will this
become an industry-wide agreement?
We have already been approached by other funds that are considering
supporting this initiative and we would welcome their support.
The greater number of institutions that sign up to the statement,
the greater impact it will have on companies.
Q10: Why are you investing in companies who you think are 'risky'?
We wouldn't define these companies as being risky per se but
we are aware that they are exposed to additional potential risks,
which can be reduced or avoided. Often a company's involvement
in Burma is only a very small part of the business but it carries
a disproportionate amount of risk through tarnished reputation
etc. We feel it is better to engage with the companies to reduce
this risk.
Q11: What are the specific problems that you are targeting?
Forced labour, involvement of the military in providing security,
funding of the military regime (especially for buying arms) -
risks for shareholders….
Q12: Why don't you divest?
Our intention in adopting this statement is to seek clarification
from companies on the steps that they take to manage and mitigate
risks associated with operating in Burma. We cannot prejudge the
information we will receive, nor the investment or governance
decisions that the investors may make since these decisions will
be made by each fund for itself.
Q13: Who are you targeting next?
As a Group we can't disclose potential future projects but we
believe that all companies that operate in countries where repressive/corrupt
regimes are in power should be aware of the risks and should have
policies and practices in place to manage that risk
Q14: What is the Group doing?
The members of the group have written to the major investors
in Burma (in which we hold shares) to inform them of the launch
of the statement and invite their response. The statement will
also be sent to government and non-governmental organisations
that are interested in the issue of Burma.
Q15: Have you done this in light of the situation in Afghanistan?
No, we have been planning the principles since Q2. But the situation
in Afghanistan demonstrates that it is dangerous to ignore problems
caused by repressive regimes in one part of the world simply because
there is a long distance between 'us' and 'them'. We are aware,
for example, that many specialists have identified Burma as a
key player in the trade in heroin, a trade that has flourished
during the period of military rule in Burma.
Q16: Are you launching this initiative because the campaigners
are setting up their divestment campaign? These risks are not
new - so why have you waited until now to act?
As a group we have been working on this issue and talking to
companies in Burma and independent specialists for several months.
We have attempted to understand how we can contribute something
practical and useful. Socially responsible investment is a relatively
new field and we are pleased that we have been able, in a relatively
short time, to come to a shared position. We can always look back
and say things could have been done better but what this initiative
does is to focus attention on what we can do now and opens up
opportunities for future initiatives.
Q17: Collectively you have significant assets but you still do
not represent the majority of shareholders in any of the companies.
So why do you expect companies to listen to you?
There are numerous examples of companies making changes when
investors engage with them on an informed basis and with pragmatic
objectives. These changes happen without the concerned investors
being in a majority. The key question is whether what we are suggesting
is reasonable and prudent. We believe this statement passes that
test and, therefore, we believe it will have the de facto support
of many investors other than those who actually choose to sign
the statement.
Q18: What evidence do you have for thinking that your good practice
guidelines are achievable?
If we look to other very troubled spots around the world - like
Angola or Colombia - we can see that many of the things that we
are suggesting have been tested and found to be useful and practical.
For example, we are asking companies to ensure that state agencies
known or alleged to have committed human rights abuse are not
contracted to work in the company's operational area. A year ago,
the British FCO and the US State Department launched "Voluntary
Principles on Security and Human Rights" that provides guidance
on a risk-based approach for engagement with state security forces.
Several major oil and gas companies are in the process of implementing
these guidelines in some very difficult situations.
We also ask companies to investigate their supply chains to determine
whether the ultimate source of products is Burma and to take appropriate
action and we know that several companies have already completed
such audits.
We also ask companies to ensure that capital is disbursed in
a transparent way, into accounts that adhere to international
accounting standards. This approach has so far been undertaken
in Angola, Chad and Cameroon. So whilst we are not saying that
any of these guidelines are easy to implement, we do believe that
with commitment, some progress is possible.
Q19: But in the context of Burma, aren't you effectively asking
companies to get the government to do what it will not do?
The situation is not so black and white. The government seems
to be taking action or is indicating a new willingness to consider
action on some of the really big issues like human rights abuses,
bribery and corruption. For example, the government recently sacked
two (out of seven) top generals and five other ministers were
retired, only two of them voluntarily. Just last month the ILO
proposed that the government set up an ombudsman with the required
national and international credibility to independently investigate
cases of forced labour. These may be the kind of steps that companies
with operations in Burma could encourage.
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