Pension power: how average citizens can affect climate change

An increasing majority of consumers, investors and employees agree that corporations must do their part to address global challenges. Demonstrating the “triple bottom line” is also a sound business strategy—in addition to creating profits, businesses must show corporate social responsibility (CSR), and operate in ethical and environmentally friendly ways.

A parallel movement is also underway to provide the means to engage in socially responsible investment (SRI), including movements to divest from fossil fuels and avoid companies that engage in environmentally harmful and unsafe labour practices.

CSR reporting has become a $20 billion dollar a year enterprise. Meanwhile, an estimated $60 trillion, or half of all global institutional assets are tied to SRI. A new book by Simon Fraser University (SFU) professor Andy Hira reveals how companies that are “doing good” can do better, and how their consumers and investors could hold them more accountable.

Professor Hira teaches political science at SFU and directs the Clean Energy Research Group. A prolific and award-winning scholar, his work focuses on global development and political economy, including promoting community development projects around renewable energy.

For his recent book, The Smoke and Mirrors Game of Global CSR Reporting: Issues and Fixes, Hira carefully analyzed how well the current CSR and SRI reporting systems are functioning. He investigated how investment managers decide what is ethical when it comes to socially responsible investing, and whether a firm’s bad behaviour affects their bottom line.

The book has been embraced by thought leaders, including Archie Carroll, whose pyramid of CSR is the best-known model in the field of corporate social responsibility.

We spoke with Professor Hira about his research.

What kind of trends did you find with the way global corporate social responsibility (CSR) is reported?

I found that CSR reporting reflects a complete lack of formal global regulation, with the existing systems often defined by western multinational corporations and based on self-enforcement. Not unlike his analysis of the 2008 global financial crisis, I observed that global CSR and SRI reporting are rife with conflicts of interest between those who rate and audit companies and the companies themselves.

Information raters are short-sighted, lacking in consistent or clear methodology or missing on-the-ground sources. Overall, the ratings are so opaque that there is no clear link between human rights and environmental disasters and the scores themselves. Therefore, a system that could reward good behaviour ends up falsely reassuring consumers and investors, which is why there continues to be factory, mining and emissions disasters with no real accountability for the companies behind them.

I recommend that arming socially conscious consumers and investors with transparent information about the way corporations operate will enable capital to flow in more ethical directions. In the face of multiple global crises, it could literally change the world. Anyone with a pension can put pressure on their pension fund manager to demand their investments truly meet their own moral compass. If enough people do this, the world can shift towards a more positive course, on a dime.

Many companies overestimate or inflate their reporting and advertising of their good works, also known as “greenwashing.” Do you have an example where a company’s reported “socially responsible” activities did not match their real-life operations?

It was surprising to me how little actual facts matter to CSR or SRI ratings agencies. In an earlier article on mining, I discuss how a company that had won numerous international awards for its CSR operations in Ghana was perceived incredibly negatively by its local residents. Upon arriving at the village, it was not hard to see why. Living conditions next to one of the world’s most lucrative gold mines were primitive. There were no paved roads, no running water, no regular electricity. The conditions were so bad we documented numerous informal mining operations as locals found few other opportunities for making a living. In fact, there are thousands of informal mining operations going on around the world for the same reason—mining rarely improves the general living standards of the communities where it operates. In this and several other stories, I did interviews and wider household surveys of the local population, which documented their discontent, one that the companies have chosen to blithely ignore.

Tell us more about investigating human rights violations at large companies. Are companies being held accountable for these violations?

One of the things I did in the book was to look at the most egregious human rights violations to see how they affected corporate social responsibility and socially responsible investment ratings. After widely reported disasters such as the Rana Plaza factory collapse, for example, there was only a fleeting effect on the investment ratings any of the clothing companies involved.  Similarly, after the widely reported upon suicides at Apple’s subcontractor (Foxconn) factory in China in 2017, there was no lasting effect on Apple’s stock. Nor, in either case, which is typical of so many others, including the treatment of the Uighars in western China, is there any real evidence that basic working conditions have changed. This is because companies police themselves, or they hire auditors who then have a conflict of interest, to do so. In the end, there is no way under such a system to verify or enforce any claims of social responsibility.

You identify middle-class and public sector pension holders as a stakeholder group of “latent activists” with the potential to push corporations towards socially responsible investing. Can you explain?

The fair-trade movement which took off in the 1990’s promised to offer consumers “alternative” channels so that they could purchase their coffee and other goods in ways that ensured workers’ safety, environmental protection and a minimal income. However, fair trade has never really grown beyond a niche product for generally wealthier savvy consumers in North America for reasons I discussed in an article back in 2006.

The parallel movement of socially responsible investment—SRI—has much more potential to really shift the global economy. Every large union, including most associated with the public sector in every Western country, has large pensions with statements of ethical principles around which they want their retirement funds invested. We are talking about a finite number of pension funds—such as the Canada Pension Plan which held $541.5 billion in 2021—that can control phenomenal amounts of the world’s capital which can be used to shift entire industry sectors’ practices.

If those funds started to move beyond lip service to reducing investments in fossil fuel companies and held companies responsible for their human rights and environmental violations in the Global South, we would have a completely transformed global economy, one that is fairer and more sustainable. Having multiple workers put pressure on their pension fund managers to actually follow the guidelines that they have already agreed upon can move the dial substantially. Moreover, there is no real evidence that they would lose money. It simply doesn’t make sense for us to keep investing in fossil fuels when they are going to be phased out.  Nor does a short-term/higher-return compensate for condemning future generations to an unlivable planet or exploiting workers to make our clothes. For a few cents more per product, we can buy goods that are safely made and not destroy the planet or exploit workers in the process.

Is there evidence that companies actually perform better when they are seen to “do good” in the world?  Do you see consumers and stakeholders becoming more insistent on corporate social, and environmental sustainability?

There is clearly a generational shift in terms of awareness about supply chains. This is occurring by consumers, investors and employees. As I note in the book: 70% of Americans think it is important for companies to make the world a better place; 55% believe that companies should take a stand on major social, environmental and political issues. Similarly, 41% of millennial investors, 27% of Gen X, and 16 % of baby boomers state that they consider a company’s CSR in making investment decisions. In the United States, 93% of employees state that companies must lead with purpose; 95% state that businesses should benefit all stakeholders, including communities; and 90% of executives believe that a strong sense of collective purpose drives employee satisfaction. Clearly, people want change- they just need a system that responds to their choices.

In the book, I discuss the case of the proposed Barrick Pascua Lama mine on the border of Chile and Argentina. First proposed in 1997, the company invested upwards of $8.5 billion by 2013.  Yet, it never gained either the local community’s trust, which was rightly concerned about environmental damage, or regulatory approval. In fact, the company was fined $16 million in 2014 for regulatory non-compliance.  The company finally pulled out of the project, losing all of its investment. Yet, this major failure at CSR was never reflected in SRI ratings scores.  This is clear proof both that CSR is good business and that the ratings are not having their designed effect on investment decisions.

The reason why fair trade and SRI exist is because of the demands of consumers and investors on companies. Younger generations in particular are demanding greater diversity and accountability in the companies they work for. For example, it has been widely reported that Google employees pressured it to pull out of some U.S. defense contracts for ethical concerns.

You suggest that the West has the power to push for global CSR standards. What are some of the ways corporations could offer more meaningful CSR reporting?

In a special edition of the Journal of Developing Societies, as well as in the conclusion of the book, I lay out an agenda for transforming the power of consumers, workers, and investors towards meaningful CSR and SRI. The journal article discusses recent court cases in the West, such as the Marlin mine case, in which petitioners sought to hold a Canadian mining company responsible in Canada for human rights violations in Guatemala, and a Dutch court holding Shell responsible for oil spills in Nigeria. These cases have the potential to push Western companies to be more responsible, since host governments in the South are incapable or unwilling, due to corruption, to enforce basic labour and environmental standards. Governments in general are too apt to put corporate interests ahead of public ones because no one in the West is paying attention, while local communities are too powerless and need allies.

The bottom line is that governments depend too much on fossil fuel revenues to really enforce the types of climate pledges they made in the Paris Agreement. The Canadian government received over $35 billion in revenues from the oil and gas industry in 2023. This explains why Canada, like many other countries, continues to offer massive subsidies to oil and gas, while also supporting ambitious climate change pledges. Simply put, the oil and gas lobbies are much stronger than any green social movement or lobby. Unless we as consumers and pensioners start to realize our power, climate change will continue its disastrous course.

For more read Hira’s article in the Conversation Canada: ESG investing has made little impact on the green energy transition so far. Why is that? 

The Clean Energy Research Group is hosting a Global Plastic Waste Workshop on April 19 at SFU’s Harbour Centre campus. For more information contact ahira@sfu.ca.