Corporate ESG Engagement Shane Chaplin Introduction What is

Corporate ESG Engagement Shane Chaplin

Introduction – What is GES is an owner advocate engagement services provider focusing on supporting asset owners and asset managers develop and implement integrated investment strategies with environmental, social and governance (ESG) considerations. Ø Core Offering: ESG Integration Solutions 1) Investment & Portfolio Mgmt – Engagement 2) Portfolio Construction & Monitoring – Analysis 3) Mergers & Acquisitions – Target due diligence Ø Year of Foundation: 1992 Ø Asset under Advice: EUR 750 billion Ø Clients: Close to 100 large financial institutions Ø Organisation: 50< employees in SE, DK, PL and CH Ø Partners: oekom Research (DE)

Introduction – Who am I? Shane Chaplin § § § Senior Engagement Manager at GES. Coordinator of our extractive sector group. Part of a diverse team – environmental scientists, political scientists, economists, journalists, lawyers. About 16 years experience. BSc (Hons) Biology, environmental consulting, HSE systems management, international development, finance sector (extractive focus).

Introduction I’m from “Perth” This one! (not this one)

Introduction

Agenda 1. 2. 3. 4. GES engagement on behalf of Strathclyde. Our engagement process. Engagement case studies (3) – successes. Concluding remarks.

GES engagement on behalf of Strathclyde Purpose: § Integrate ESG issues in the investment process. § Increase transparency wrt indirect investments in companies associated with violations of international norms. § Raise awareness of controversial issues among asset managers in order to encourage them to be active owners and foster positive change at company level. § Semi-annual evaluation of engagement activities. § Annual ESG Evaluation.

GES engagement on behalf of Strathclyde GES ENGAGEMENT FORUM App. 100 cases Legal & General Edinburgh Partners ----- Information flow ----- Engagement. Strathclyde GES JP Morgan Pimco

Our engagement process From Alerts to Engagement Forum.

Our engagement process Applying global norms and standards.

Our engagement process In words, we: § Perform due diligence of companies’ non-financial business conduct. § Define improvement objectives and decide on necessary actions as an owner advocate on material business conduct issues. § Implement an engagement plan with a clear process and defined timeline. § Feedback and involve our clients on actions, company responses, progression against plan and next steps.

Engagement case studies Rys. Hydro – Incident and dialogue summary. §August 2009, 75 people were killed in an accident at Rus. Hydro's hydro-electric plant Sayano. Shushenskaya in south Siberia. §Parliamentary report – lack of permanent monitoring and control over the power plant safety. § GES field trip over four days to get first hand information on how Rushydro managed its responsibilities. §Interviewed more than 15 responsible managers, construction site inspections, medical emergency system demonstrations and visits to schools and health facilities in the local community. §Met and asked follow-up questions to managers, employees as well as locals that were not associated with Rushydro.

Engagement case studies Rys. Hydro - Location

Engagement case studies Rys. Hydro – The facility

Engagement case studies Rys. Hydro – The accident

Engagement case studies Rys. Hydro – Meetings

Engagement case studies Rys. Hydro – Case outcome. § Slow , poor quality response at first. § Trust building phase, eventually field visit arranged. § GES’ own inspection show that the company eventually took full responsibility for remediating and compensating the effects of the accident. § The company also improved health and safety management so that it is now systematically managing the risks related to its operation in order to ensure its safety. § Provided GES with policies and procedures.

Engagement case studies Rio Tinto – Incident and dialogue summary. § Joint venture partner in the Freeport-owned Grasberg gold and copper mine in West Papua. § The mine releases 240, 000 tonnes per day of heavy metal rich waste tailings into a mountain river, creating a 170 km long zone of impact. § Ore production (10 times UK Coal output annually). § Waste rock deposits in the highlands - acid mine drainage. § World Heritage nearby. § Human rights and safety problems. § Dialogue started slowly via email, then face to face in 2009 at the PRI Conference in Sydney. § Field trip almost arranged, fell through due to violence.

Engagement case studies Rio Tinto – Location (Grasberg mine).

Engagement case studies Rio Tinto – Location (Grasberg mine). Where We Are

Engagement case studies Rio Tinto - Grasberg mine open pit.

Engagement case studies Rio Tinto –Environmental impact.

Engagement case studies Rio Tinto – Typical industry standard tailings management vs riverine disposal.

Engagement case studies Rio Tinto – Grasberg surrounding environment.

Engagement case studies Rio Tinto – Some good onsite practises.

Engagement case studies Rio Tinto – Other labour, safety, security and social issues.

Engagement case studies Rio Tinto – Case outcome. § Company initially defensive, suspicious of GES (2009). § Said it was their partner’s problem. § We said, what are you doing to influence your partner? § Dialogue and trust developed, HSE chief changed. § Many teleconferences with investors – with both Rio Tinto and Freeport. § Also lobbied Freeport to improve reporting, lodged shareholder resolution. § Rio Tinto started to talk about a revised mine waste policy. § Consulted GES in developing the policy. § Published in late 2012. Commitment not to use riverine tailings disposal in future (proud of this one). § Freeport also produced much improved monitoring report.

Engagement case studies G 4 S – Incident and dialogue summary. § In December 2006 and January 2007, the international trade union alliance UNI filed two complaints to the UK OECD, charging G 4 S with systematic labour violations in twelve countries. § Also involved in controversy for supplying security equipment at the barrier checkpoints, prisons and police stations in the West Bank. § GES in contact with UNI on several occasions. § GES met with representatives of UNI and SEIU as well as the Swedish Transport Workers’ Union. § Numerous phone calls, meetings and emails between G 4 S and GES over several years.

Engagement case studies G 4 S – Engagement successes.

Engagement case studies G 4 S (and others) – OPT visit

Engagement case studies G 4 S – Case outcomes. § In February 2010, UNI confirmed to GES that the implementation of the Ethical Employment Partnership was progressing well. § GES received comprehensive documentation on G 4 S’ reinforced management systems regarding labour issues § In 2010, G 4 S reported that positive results had been achieved in the first two countries where the Ethical Employment Partnership was implemented. § In South Africa the new cooperative approach enabled the industry-wide pay round to be settled without the usual industrial action and accompanied violence. § In India good progress in building constructive relations has been achieved. § Exited OPT contracts in 2011. § Publicly acknowledges GES’ role in improving company practise. § Will meet GES today in Stockholm.

Concluding Remarks Ingredients engagement for success § § § Highlight the material risk to companies. Realistic, achievable improvement goals – systems focus. Reference to concrete norms and standards / science – rather than “ethics”. Thorough knowledge of the subject matter - expert credibility. Cultural understanding. Trust and relationship building. Lobbying skills – common ground, fairness, firmness. Persistence – super-tanker analogy. Willingness to travel and meet face to face. We don’t always win, but what’s the alternative? Pursue your “interests”, it might lead somewhere good individually/organisationally.