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Executive Director: How Poor ESG Awareness Can Lose Your Company Shareholders UNEP FI Director James Gifford on Responsible Investment From QFINANCE: The Ultimate Resource 4th Edition, Published September 2013 www.qfinance.com James Gifford is the Executive Director of the PRI Initiative and has been guiding the initiative since its inception in 2003.

To understand the potential impact of ESG (Environmental, social and corporate governance) issues on shareholder value, you have only to look at examples like Lonmin in South Africa, where labour issues have led to a dramatic destruction of shareholder value. Similarly, it was relatively well known that BP's US division was not managing safety issues as well as its peers prior to Macondo. It is a relatively straightforward argument to make to investors that the companies which will prosper over the long term are those that manage ESG issues better than their peers. For example, when you assess two mining companies with similar fundamentals, a review of their respective ESG performance can help to reveal which one may offer the better long-term prospect and lower risk. Investors should therefore look at a broad range of issues when evaluating and valuing companies. Traditional fund managers have measured success in terms of a very narrow and short-term set of metrics, and it is clear that there are real risks with that approach. Responsible investment today is very different from the earlier movement of ethical investing, and it is not focused on restricting the range of potential investments based on absolute criteria. Telling investors they should restrict themselves to an approved list was never going to resonate with fund managers whose priorities are to achieve their benchmark returns. If we wanted to engage mainstream investors on ESG issues, it had to be aligned with their fiduciary duties and, therefore, had to focus on the business case. What is becoming clear to investors is that ESG issues can have very material consequences, and investors have not traditionally paid attention to these issues, which could drive, or destroy, value for shareholders in the future. Encouraging investors to invest in productive enterprises that deliver real value to society is the classic win-win over the long term. For further information, or to contact the author about a longer piece or viewpoint, please do not hesitate to get in touch with Sophia.Blackwell@Bloomsbury.com- Tel: 020 7631 5831 About the PRI Initiative The PRI Initiative is a network of international investors that work together to put the six Principles for Responsible Investment (please contact us for details) into practice. Today, there are more than 1,100 signatories, representing about US$32 trillion of assets under management, or about 15% of total global capital. More information at www.unpri.org and www.qfinance.com. About QFINANCE QFINANCE is a unique collaboration of more than 300 of the world’s leading practitioners and visionaries in finance and financial management, providing an unparalleled range of crossreferenced resources, which are sure to satisfy the hungriest of minds. www.qfinance.com


How Poor ESG Awareness Can Lose Your Company Shareholders