On the first Monday of each month Emerging Markets ESG publishes a special interview with an academic, expert or practitioner about a specific topic with relevance to environmental, social and/or governance (ESG) issues.
This month’s interview, the eighth interview in the special interview series, is about Burma and is with Lauren Compere, Managing Director, Boston Common Asset Management, LLC, Boston, Massachusetts, United States of America.
Boston Common Asset Management, LLC is an investment manager and a leader in global sustainability initiatives. It specializes in long-only equity and balanced strategies and pursues long-term capital appreciation by seeking to invest in diversified portfolios of high quality, socially responsible stocks. Through rigorous analysis of financial, along with environmental, social and governance (ESG) factors it identifies what it believes are attractively valued companies for investment. As a shareholder, it urges portfolio companies to improve transparency, accountability and attention to ESG issues. Its focus is global; it manages U.S. and international portfolios aiming to meet the needs of institutional and individual investors. Lauren Compere is Managing Director and the Director of Shareholder Engagement at Boston Common where she oversees global shareholder engagement initiatives. Ms. Compere sits on the Governing Board of the Interfaith Center on Corporate Responsibility (ICCR) and currently serves as Treasurer. She previously served as the Co-Chair of the ICCR Access to Health and Human Trafficking Working Groups. She is the Co-Chair of the Emerging Markets Disclosure Project (EMDP) under the U.S. Social Investment Forum (USSIF), and serves as the co-lead for the EMDP Korean team. Ms. Compere previously served on the USSIF International Working Group Steering Committee, of which she was Co-Chair from 2006 to 2009. She received her B.A. in Environmental Studies from the University of Vermont, and her M.S. in Community Economic Development from Southern New Hampshire University. She has worked in the responsible investment industry for almost 25 years.
Emerging Markets ESG: Please briefly describe the key Socially Responsible Investment (SRI) issues in Burma.
Lauren Compere: Burma sits at the bottom of the global corruption index, and issues such as unlawful land grabs, limited judiciary oversight, and regional civil war persist. Conflict continues to rage in resource-rich ethnic areas where investment is most likely, such as the recent ethnic violence near key oil and gas production and exploration areas in Arakan State. Additionally, Burma now is actively seeking foreign investment in manufacturing sectors, such as apparel, where worker and human rights problems are prevalent. Although the new democratic reforms aim to address the long history of human rights, their impact on worker rights and environment abuses in the region will not seen by investors and companies as quickly as one would like.
Emerging Markets ESG: In July 2012 the U.S. State Department issued Reporting Requirements on Responsible Investment in Burma. Please briefly describe the reporting requirements.
Lauren Compere: As of June 2012, sanctions prohibiting U.S. investment in Burma were eased. The State Department issued reporting requirements in July, in conjunction with the new general licenses permitting investment and the export of financial services to Burma. Until that shift in U.S. policy, Burma had been the subject of U.S. sanctions for more than 15 years. The U.S. and other western governments lifted sanctions in response to the reforms initiated by Burmese President Thein Sein, including the by-elections in April that resulted in the election of Nobel Peace Prize winner Aung San Suu Kyi to Burma’s parliament.
Under the reporting requirements, all U.S. persons (including U.S.-organized entities) with cumulative investments in Burma exceeding $500,000 must report on processes they have in place to address social and environmental impacts. It is important to note that sanctions will remain in place on conducting business with specially designated nationals — including a number of large Burmese “crony” companies — and the military or military-controlled enterprises. U.S. companies that invest an aggregate of at least $500,000 in Burma will have to submit an annual public report covering: an overview of operations in Burma, human rights, labor rights, and environmental policies and procedures, arrangements with security providers (if applicable), property/land acquisition, including processes to identify land rights and address resettlement practices, and payments to the Government of Burma, sub-national authorities, and state-owned enterprises if the aggregate annual amount exceeds $10,000. Additionally, U.S. companies must also submit annual information to the U.S. State Department (which are confidential and will not be made public). This includes: the contact information of the individual preparing the report, whether the company or individuals representing it have held meetings or had other communications with the military or other armed groups, and, if so, with whom they met, and any risks or impacts that due diligence on human rights, labor, and the environment identified, and steps taken to mitigate them. There is also a specific reporting requirement related to new investments with MOGE (Myanmar Oil and Gas Company) that U.S. persons must notify the State Department in writing within 60 days of entering the investment.
Emerging Markets ESG: On October 4, 2012, 21 institutional investors, asset owners and asset managers with a combined total of more than $407 billion in assets under management submitted a comment to the U.S. State Department on the new Reporting Requirements on Responsible Investment in Burma. Boston Common Asset Management is one of the core institutions which has engaged on this effort. Please briefly describe the comment.
Lauren Compere: Via the Conflict Risk Network’s submission on October 4, 2012, the investor group expressed ongoing concern about the risks posed by the U.S. Government’s decision to permit new investment in Burma. The investor group did offer support, however, for the requirements as a valuable tool and potential means to help advance human rights and political reform, consistent with the U.S. Government’s longstanding foreign policy priorities in Burma. The submission provided specific input to address the questions the State Department is considering with regard to the reporting requirements, including the necessity of the information for proper agency function; the degree to which collecting this information might impose a burden on investors; and how to improve the quality, utility, and clarity of the information being collected.
Primarily, our submission emphasized that the reporting requirements are not overly burdensome to companies making new investments in Burma, and in fact could help minimize risks in the short term and long term for both investors and companies. We then outlined the consequences for failing to report or for not reporting fully and accurately should be specified; that information about financial, operational, legal, regulatory and reputational risks contained in the reports should be accessible to institutional investors and the general public; and that the reporting requirements should provide specific guidance for their practical implementation, including references to international standards most relevant to Burma, as well as sector- and industry-specific guidelines.
We believe that reporting should address not only policies and procedures, but also how they are implemented and how progress is measured. Reporting should include subsidiaries and business partners, since policies and procedures will prove to be less effective without adequate implementation throughout all of a company’s operations and across the lifespan of any projects.
Finally, we urged the timely release of the final reporting requirements.
Emerging Markets ESG: Why is Burma important to Boston Common Asset Management?
Lauren Compere: Human rights issues form a major part of our shareholder advocacy efforts at Boston Common. In the nearly ten years since our founding we have worked at the public policy, industry, and company levels to root out instances of systemic human rights abuses committed either directly or indirectly by the companies and sectors in which we are invested. We joined this group of investors in urging caution toward investment in Burma because the nation’s commitment to protecting human rights and eliminating corruption remains to be seen. There are still high risks associated with moving too quickly to invest in Burma, so we urge corporations to take a cautious approach as they determine what sort of exposure they face to human rights abuses, corruption, bribery, and environmental risk they may face. Robust reporting guidelines are critical for addressing the real risks investors and companies are still faced with there.
In the coming quarters, Boston Common will focus on engaging our portfolio holdings that are considering entry into Burma, stressing that enhanced human rights due diligence beyond normal protocols will be needed, given the high ESG risks still posed in the country. For example, this past June, we met with members of power and automation company ABB’s sustainability team in Switzerland. The discussion focused on how ABB is addressing rising expectations related to human rights oversight as they strategize re-entry into Burma.
Emerging Markets ESG: How do you plan to engage with other institutional investors, stakeholders and Burmese institutions on SRI in Burma?
Lauren Compere: Boston Common is part of a coalition of investors and NGO groups under the Conflict Risk Network that will continue to engage the U.S. State Department to ensure that the reporting requirements are used to gather and publicize critical information about the operations and impact of U.S. corporations in Burma.
We are also closely following what is happening in the European Parliament regarding human rights requirements for companies domiciled in the EU. The EU is deliberating the reinstatement of trade preferences which would grant duty-free and quota-free access to the European market for all Burmese goods except for arms. Through investor coalitions of which we are a part, we will provide parallel feedback to the EU Parliament, similar to that which we have provided to the U.S. State Department.
In addition, it is critical for global institutional investors to come together across various coalitions, such as the UN PRI, to ensure that there is a common set of expectations on companies. This is especially essential in critical sectors such as oil and gas, mineral extraction, and finance, which have been previously tied to some of the most egregious social, environmental, and human rights abuses. As stated earlier, Burma is actively seeking investment in new sectors, such as manufacturing, which will have to be monitored closely.
One of Boston Common’s key strategies is to continue ties with local stakeholders in Burma through various networks; to have eyes and ears open on the ground to learn what is really happening, as reforms continue to be rolled out. While we, and other investors, remain hopeful, we recognize that the reforms in Burma are fragile and potentially reversible, especially as conflict in resource-rich regions continues to occur.