The Campaigners’ Guide to Financial Markets THETHE CAMPCAMPAIGNERS’AIGNERS’ GUIDEGUIDE TTOO FINFINANCIALANCIAL MARKETSMARKETS Effff ective Lobbying of Companies and Financial Institutions Nicholas Hildyard Mark Mansley 1 The Campaigners’ Guide to Financial Markets 2 The Campaigners’ Guide to Financial Markets Contents Preface – 7 Acknowledgements – 9 1. FINANCIAL MARKETS - A NEW POLITICAL SPACE – 11 A world transformed – 12 The impacts of globalisation – 14 The growing power of the private sector – 16 The shifting space for change – 17 Lobbying the markets – 18 The power of the market – Markets as “neutral ground” – NGO strengths: market weaknesses – Increasing consumer awareness – Globalisation and increased corporate vulnerability – The rise of ethical shareholding – Changing institutional cultures – New regulatory measures – A willingness to change? The limits of market activism – 33 Is a financial campaign appropriate? – 33 Boxes The increasing economic power of the private sector – 13 What are financial markets? – 14 Changing the framework: From Seattle to Prague – 18 Project finance – 20 Consumer and shareholder activism – 23 A bank besieged: Consumer power against bigotry – 25 Huntingdon Life Sciences: Naming and shaming – 27 First do no harm – 30 The impact of shareholder activism – the US experience (by Michelle Chan-Fishel) – 33 Put your own house in order – 34 Internal review – 33 2. UNDERSTANDING THE MARKETS – PSYCHOLOGY,,, ARGUMENTS AND OPENINGS – 37 Using the mentality of the market to your advantage – 38 Exposing the risks – 39 Key pressure points and how to use them – 41 Management quality – Business strategy – Financial risk: company analysis / project analysis – Non–financial risks – Political risks – Legal risks – Environmental risks – Reputational risks Matching the pressure points to the financial player – 54 Boxes Reading the balance sheet – 40 ABB – Moving out of dams – 43 Three Gorges: Bond issues challenged – 47 3. CAMPAIGNING IN THE MARKET::: STRATEGIES,,, TACTICS AND TIMING – 57 Strategies,,, Tactics and Timing – 58 Industry-wide campaigns – 59 Changing company practices – 59 3 The Campaigners’ Guide to Financial Markets Infrastructure projects – 61 Financial market practice – 62 The main options for intervention – 63 Analysis and revaluation – 63 Engagement and reducing “bad practice” – 64 Direct campaigning and moral persuasion – 68 Timing – 70 Key intervention points – 71 Initial public offerings –71 AGMs and shareholder resolutions – 71 Creating political space – 74 Boxes Genetic slump – 60 Specimen letters – 65, 66, 70 Wording your resolution – 68 Potential and limitations of shareholder activism – Insights from the US (by Michelle Chan Fishel) – 69 Pull out of Burma: Protests,,, boycotts and shareholder action – 72 BP: Mobilising investors for change – 75 4. PLAYERS IN THE MARKET – 77 Understanding your audience – 78 Analysts – 80 Types of analyst – 80 What sort of people are analysts? – 82 What are their success factors? – 83 What are their outputs? – 83 What information do analysts use? – 84 When do they do their research? – 84 What time frame do analysts have? 84 Engaging analysts – 84 Presenting your research – 85 The need for preparation – 85 Timing your intervention – 85 Institutional investors – 86 Types of institutional investors – 86 Investment institutions – 87 Who’s who in the institutions? – 90 What are their success factors? – 95 Fund managers – 97 Who are they? – 98 What are their success factors? – 98 Competition – 99 Information overload – 99 Style of fund managers – 102 Mergers and change – 103 Engaging fund managers and investors – 103 Approaching fund manager – 104 4 The Campaigners’ Guide to Financial Markets Campaigns targeting fund managers – 105 Practicalities of running a fund management campaign – 106 The ethical investment sector – 107 The ethical niche – 107 Types of organisation – 107 Who works in ethical investment organisations? – 109 What are their success factors? – 111 How can ethical investors help? – 111 Working with ethical investors – 112 Conclusions – 112 Banks and project finance – 113 Banking – Risk and reputation – 113 Getting access to senior management – 114 Understanding project financiers – 115 Stages of project finance – 116 Boxes The Bakun campaign – Lobbying the analysts – 81 The World Bank bonds campaign – 82 Organising a shareholder resolution: The Balfour Beatty campaign (by Kate Geary and Hannah Griffiths) – 91 Questions to fund managers – 96 The “Ethics for USS” campaign (by Jess Worth and Kate Geary) – 100 Ethical investment organisations outside Europe and North America – 108 Table 1: Socially Responsible Investment networks and research organisations – 110 5. GETTING INFORMATION FOR A FINANCIAL LOBBYING CAMPAIGN – 119 Structuring your research – 120 Where do I find . ? Company annual reports – 126 Company websites – 128 Overview of the company – 128 The company’s record – 128 Environmental policies – 134 Subsidiaries and parents – 135 The products a company manufactures – 136 Names of the shareholders – 137 Help in launching a shareholder action – 139 What companies a financial institution is investing in – 139 How well a company is performing – 140 Analysts’ reports – 141 Who’s financing a private-sector infrastructure project – 141 What public money is backing a project – 142 Names of company analysts – 143 Names of fund managers – 144 Names of company advisors – 145 Names of company directors – 145 Who’s importing and exporting what – 148 What research a company is funding – 148 Boxes and tables Table 2: Key directories for corporate research – 124 Table 3: Company reports on the Web – 127 5 The Campaigners’ Guide to Financial Markets Table 4: Top corporate research web sites – 129 Table 5: Web sites with attitude – 135 Table 6: Directories detailing corporate ownership – 137 Spotting key investors – 138 Table 7: Infrastructure project databases on the Web – 142 Table 8: Pension fund directories – 143 Table 9: Directories with details of key company officials – 145 Table 10: Importers and exporters – Directories and web sites – 147 6. FURTHER RESEARCH – SKILLS AND RESOURCES –149 Where to go for information – 150 Libraries – 151 Uses of libraries – Choosing your library – How to use libraries The Web – 154 The dangers – Search engines – Types of search – English isn’’’ t the only language – Filtering software – Other techniques – Free trials The Media – 157 Media on the Web – CD-Roms – Indexes – Finding trade journals – Alternative media – Press databases Company and industry sources – 162 Trade associations – Professional associations – Trade journals – Market research Government sources – 165 Using company registrars – Finding you way round government- Regulatory agencies – Government departments and quangos Parliaments – 171 Statistical sources – 173 Verbal sources – 173 Conferences – News conferences – Interviews Financial Instutions – 175 Ethical investors Boxes Basic skills and techniques – 152 Table 11: UK business and copyright libraries – 153 Table 12: Tried and tested engines – 155 Table 13: Guides and portals – 157 Table 14: Trade journal publishers – 159 Table 15: Press databases on the Web – 160 Table 16: Trade associations – 163 Using EDGAR to challenge companies – 167 Table 17: Regulatory agencies on the Web – 168 Table 18: Statistical sources on the Web – 172 Table 19: Ethical investors – 175 7. RESEARCHING SECTORS – 177 Agribusiness and biotechnology –178 Oil and gas – 182 Mining – 185 Dams – 187 Pulpwood plantations and the paper industry – 189 Carbon trading – 192 References – 197 Glossary – 201 6 The Campaigners’ Guide to Financial Markets PrPrefefaceace his Guide arises out of the international campaign in the Tmid-1990s by environment and human rights’ groups in Malaysia and elsewhere to stop construction of the Bakun hydroelectric dam in Sarawak, Malaysia. The dam, which would have caused the involuntary relocation of some 10,000 indigenous people and the flooding of 70,000 hectares of land, would have been built and operated by a private sector consortium, headed by the Bakun Hydroelectric Corporation. The campaign halted the project (although there is now talk of reviving the dam, albeit in a scaled-down form). Key to the campaign’s success was the lobbying of potential investors in the dam – and of the financial analysts who advised these investors. Since the Bakun campaign, both authors have worked on other campaigns where lobbying investors has proved a major tool to exert pressure so as to stop environmentally-damaging and socially- inequitable projects – or at least to lessen their impact. 7 The Campaigners’ Guide to Financial Markets A key lesson from such campaigns is the recent changes in the political and that their effectiveness is greatly economic landscape, both in the enhanced when activists understand the developed world and in the developing culture and psychology of the financial countries, that have made lobbying institutions that they are seeking to financial markets a fruitful area for influence. This Guide focuses on the public interest groups seeking to financial institutions that dominate the challenge unsustainable patterns of UK markets. It summarises the investment and development. It looks at arguments that are most likely to make how globalisation has curtailed many an impact on these institutions; the avenues that campaigners previously approaches to campaigning that have used to seek change, for example proved most effective; and the areas in through lobbying governments – and