California & Global Corporate Accountability:

Responsibilities & opportunities for California’s citizens and investors

bySandy Buffett

The Nautilus Institute for Security & Sustainable Development

Californians need to demand greater levels of environmental, social, and ethical disclosure from multinational corporations.

As the fifth largest economy in the world, California's citizens, public pension funds, and legislators have special opportunities and obligations to influence the terms of globalization.

The Sustainable & Responsible Corporate Governance Initiative explores opportunities for California's institutional investors to exert leadership and leverage in the global economy.

California is the 5th largest economy in the world

2000: Gross Product (billions of dollars) 1 United States 9,882.8 2 Japan 4,677.1 3 Germany 1,870.1 4 United Kingdom 1,413.4 5 CALIFORNIA 1,357.8

Globalization: Regulatory Gaps,Ethical Dilemmas

Economies are global, norms are notAccountable to shareholders rather than stakeholdersDifferences in national environmental and labor standardsDifferences in basic societal frameworks of norms and governanceIntense competition for investment keeps national standards ‘stuck in the mud’

Global corporations need global rules

Two possible approaches:Markets—Pressure companies to adopt accountability standards and require greater disclosure through shareholder/investor power, consumers, and labor/NGO action.

Government—Work for legal/regulatory reforms at state, national, international level to set common rules and standards.

What can Californians do?

Raising the bar in California on global corporate disclosure is a way to increase corporate accountabilityCalifornia’s public $$ should be invested in alignment, not at odds with CA policies toward sustainability, I.e. renewable energy targetsCalifornia’s public $$ is a powerful force on Wall Street that could serve the public goodState-level ‘entry points’ can create precedents for new global standards

Leveraging California’s investors to demand

better corporate governance

CalPERS: $151 billion in assetsLargest public pension fund in US, 3rd largest in world Holds stock in over 1,600 corporations$21 billion invested in California companiesWhen CalPERS acts, Wall Street Notices

Public pension funds and Fiduciary Responsibility

The duty of loyalty– they must act solely in the interest of beneficiaries

Toxic releases, polluted bays and deltas, superfund sites, human rights abuses, cancer clusters, neglect of renewable energy options, sprawl, and poor labor conditions are NOT in the interest of California beneficiaries.

“CalPERS adopts new human rights screen”

Feb, 2002, new screen adopted for emerging market investmentsApplies to overseas investments only, approx. $1 billionDoes NOT apply to MNCs Country-based rather than Company-basedAdopted after pressure from labor groups

What about the other $150 billion?

Corresponding push from California citizens, students, and pension beneficiaries could prompt CalPERS and other investors to adopt far-reaching environmental and social criteria for entire corporate portfolio

What is CalPERS already doing?

CalPERS adopted Global Sullivan PrinciplesDisclose proxy votesHave supported some environmental shareholder resolutions

State Treasurer Philip Angelides stated:

“There is a correlation between

good corporate practices and good investment results. People in the investment industry often want to put up a wall between the two things, but they are related.”

Leveraging the CalPERS effect

Push for CalPERS to adopt policies on engaging corporate management on the following:

Require International Right to Know type disclosure of overseas operations

Companies adhere to standardized disclosure & reporting– GRI?

Broaden the language of “corporate governance” to embrace environment and human rights

Target egregious corporate performers through shareholder activism

Develop communication mechanism between CalPERS investment committee & stakeholders

Enron debacle provides window of opportunity

CalPERS lost $62 millionIt has formed a task force to reexamine corporate governance & disclosureKathleen Connell, State Controller & Board Member stated:

“We have huge leverage in our portfolios. I would really like to see us emerge with some new forceful ideas and get them implemented…It’s time to tighten the screws”

For questions or comments, please contact:

Sandy Buffett, Senior Program OfficerThe Nautilus Institute for Security & Sustainable

DevelopmentBerkeley, CA USA510.295.6116Email: sbuffett@nautilus.org Web: www.nautilus.org