Engaging with data provider MSCI on Glencore
The United Nations Global Compact (UNGC) is a set of voluntary principles covering human rights, labour, the environment and corruption, launched in 2000. The principles were designed to be universally applicable, to support the UN’s Sustainable Development Goals and to provide a common ground for companies, governments and non-government organisations to conduct business activities. The UNGC is neither prescriptive nor legally binding.
Human rights, labour, environment and corruption are often considered ESG issues. If reports surface which link a company’s business activities to these issues, it may be flagged as a controversy which could impair company value. Ruffer reviews controversies as part of its ESG analysis of companies. In early 2023, MSCI ESG Research – one of our research providers – reassessed Glencore’s involvement in the management of the Cerrejón coal mine, as part of its controversy screening and monitoring. MSCI determined Glencore had failed UNGC’s Principle 1 (businesses should support and respect the protection of internationally proclaimed human rights) and placed it on its watch list for UNGC’s Principle 7 (businesses should support a precautionary approach to environmental challenges) for water management. The reassessment was triggered by two factors. Firstly, MSCI changed its methodology for evaluating controversies. Secondly, Glencore’s degree of ownership of the Cerrejón mine had increased, after it bought out two prior co-owners. By taking on full ownership, Glencore is now deemed to be directly accountable for the controversy. In response, Glencore wrote to shareholders and published a statement on its corporate website. We took the opportunity to meet with the company to discuss this issue, as well as other aspects of the business. Glencore argued MSCI’s change of heart was due to the adjustments to its methodology combined with the change in ownership and what Glencore believed to be flawed analysis of Cerrejón’s involvement in, or contribution to, the alleged human rights and water management infractions. We followed up by meeting with MSCI to discuss the concerns raised by Glencore and to ask for additional clarity on the governance and oversight process.
MSCI raised three main issues on controversies. Firstly, they are normally perceived as detrimental to a company’s reputation, so have the potential to impact company value. So it’s understandable that companies react defensively when called out for actions or behaviour that portray them negatively. Secondly, the assessment of failure of the UNGC is MSCI’s own, based on a transparent methodology that is publicly available. The UNGC provides no guidance on what constitutes a pass or a fail. Finally, while MSCI provides an assessment of controversies, it does not advocate action or inaction – this remains at the discretion of the parties that use its research.
We asked whether MSCI had considered additional material provided by Glencore or relied only upon non-governmental organisations and media reporting. MSCI said it placed greater weight on publicly available information – regardless of credibility or source – than information provided by the company. We understand this decision on weighting was escalated to the highest committee within MSCI ESG Research. We suggested this process would benefit from both independent (expert) members opining on information and analysis and additional transparency on how, and by whom, conclusions were reached.
When using research from companies such as MSCI, we need to ensure the information is based on robust methodologies we agree with. It is no easy task to provide balanced and fair information, especially when the various sources have their own intentions or motives. MSCI provides information built on a published methodology on potential controversies. But we believe that, as an influential organisation in the ESG space, it should continually assess and enhance its own methodologies to ensure it provides a fair and balanced view.