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Investors Need to Safeguard Whistleblowers in Investee Companies – PRI 

Principles for Responsible Investment (PRI) report says investors should look for the “red flags” which prevent whistleblowing.  

Effective whistleblowing mechanisms are “a key feature” of good governance which investors should demand from investee companies, according to new Principles for Responsible Investment (PRI) report 

‘Whistleblowing: Why and how to engage with your investee companies’ outlines key recommendations for investors in order to successfully undertake stewardship activities on whistleblowing. 

“Investors need to understand that, if a whistleblower has gone public, then there was probably a longer internal process prior to that where they tried to uphold what the company publicly claims to stand for and management failed them,” said Jack Poulson, Founder of Tech Inquiry and former whistleblower at Alphabet Inc, during a panel discussion marking the launch of the report yesterday. 

Company policies are already underpinned by legislation including the EU Whistleblowing Directive, which requires companies with more than 50 employees or an annual turnover of €10 million to implement internal reporting channels). But investors need to do more to help ensure whistleblowing is both protected and encouraged in investee companies, the PRI said. 

The report called for investors to form a clear escalation strategy which should be reflected in future voting principles and actions, such as making it a requirement for all investee companies to have a publicly available whistleblowing policy.  

“If there is no such whistleblowing policy and the company has not engaged or made progress within one year of engagement, investors should vote against the relevant board director (e.g. the chair of the audit or risk committee),” the report noted.  

Protection for whistleblowers 

Investors should put pressure on investee companies to implement better protections for whistleblowing, such as anonymity and legal support, said Ida Nowers, Law and Policy Coordinator for the Whistleblowing International Network (WIN).  

“Too often, company policies stipulate that staff must be acting in ‘good faith’. Such messaging can cause staff to delay reporting suspicions of wrongdoing for fear of being perceived as having [an] ulterior motive. Investors should make sure organisations remove any cause for hesitation in speaking up, before it is too late to avoid harm or lasting damage,” Nowers continued. 

The PRI report highlighted MSCI ESG research which found that just 10% of 2,631 issuers assessed under its corruption and instability category have publicly disclosed a whistleblowing policy that allows for both anonymous reporting and legal protection. Three quarters (76%) disclosed a whistleblowing policy with no specific details of protection and 14% disclosed no evidence of a whistleblowing policy at all. 

Poulson shared his own personal experience of identifying a problem within his workplace, raising the issue with his superiors and being stonewalled. Eventually, Poulson felt he had no choice but to resign. Constrained by a non-disclosure agreement (NDA), Poulson was limited as to how effectively he could disclose the breaches in ethical code he uncovered.  

“It really cannot be emphasised enough how much NDA constraints and concerns over being sued can restrict a person’s willingness to whistleblow,” he said.  

The PRI has further called for firms to implement an adequate policy that will provide whistleblowers with “immunity from any form of retaliation – direct or veiled – in the workplace”.  

 “Culture of openness” 

The PRI report noted investors should request more expansive data sets from ESG research providers which should cover performance indicators on whistleblowing. Being able to evaluate the effectiveness of whistleblowing policies in investee companies, such as whether or not a company publicly discloses relevant data on whistleblowing incidents, will allow investors to assess if a “culture of openness” exists. 

The PRI suggested investors should install a “red flag system [to] trigger further engagement” with investee companies on issues surrounding whistleblowing. For example, if the investor sees there is an absence of reporting channels, such as a confidential phone line, which whistleblowers can use within their company, this should be viewed as a red flag.   

However, simply identifying the number of whistleblower cases put to a company is not enough, the report noted, as this does not necessarily correlate with company action taken. “Low numbers are not necessarily good numbers,” Nowers emphasised. If employees are not coming forward with concerns, then that might suggest there is not a culture of openness within the company or that the existing whistleblowing system in place is inefficient and not trusted. 

Investors should instead take note of “the volume of cases handled, the number of cases pending and how long they were investigated, the average time for resolution, conclusions reached and actions taken,” the report said.  

“Ultimately, it’s not a tick-box exercise,” Nowers concluded. “Investors need to help find creative solutions for a ‘speak up culture’ within investee organisations.” 

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