Managing CSR: Reducing Risk, increasing rewards

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Posted in: Strategy, Sustainable Investment

Managing CSR: Reducing Risk, increasing rewards

December 01, 2001

New guidelines for shareholders Institutional investors are set to show a greater interest in social, environmental and ethical (SEE) issues, following the publication of disclosure guidelines by the Association of British Insurers. The move on October 23 was an explicit recognition by the ABI that responsible business practice affects company performance by reducing exposure to risk. Topics recommended for scrutiny include: . procedures to identify the risks to value from SEE matters and management systems in place to address them; directors’ training to cover SEE matters; disclosure in the annual report on policies, procedures and verification. The guidelines were included in a report, Investing in Social Responsibility: Risks and Opportunities, sponsored by Marsh and Andersen, which uses case studies from BP, AWG and Marks & Spencer among others to demonstrate the competitive advantages derived from responsible business practices. It also contains a risk-based methodology for managing SEE issues. Contact John Hales, ABI, on 020 7600 3333 (http://www.abi.org.uk)

Risk management unsystematic Most companies consider risks from social and environmental factors as significant but few have systematic approaches to managing them. The findings are based on interviews with 14 major UK companies which were published as Governance, Risk and Corporate Social Responsibility on October 23 by the institutional investors, Friends Ivory & Sime, and SustainAbility. It accompanies a revised policy statement by FIS that integrates the new ABI guidelines into its own investment criteria. Contact Craig Mackenzie, FIS, on 020 7506 1100 (http://www.friendsis.com)

FTSE4Good latest FTSE4Good announced new US and global benchmark indexes on November 21, following the launch last summer of similar indexes for Europe and the UK along with four tradable indexes (see CAB 58). The benchmark indexes include all FTSE listed companies in the four geographic areas that meet the socially responsible criteria. The tradable indexes contain the top 50 (UK and Europe) or top 100 (US and global) companies by market capitalisation, providing investors with a pool of potential stocks for ethical funds. Contact Craig Greaves, FTSE4Good, on 020 7448 1821 (http://www.ftse4good.com)

Dow Jones latest The new European Dow Jones STOXX Sustainability indexes are now available. The indexes follow the same selection methodology as the Dow Jones Sustainability World Index (see CAB 60). The top performing companies in their respective sectors, according to initial rankings released October 15 are detailed in the table below. Contact Alexander Barkawi, SAM Indexes, on 00 41 1 395 2828 (http://www.sustainabilityindexes. com)

Burma risk to shareholders Eight European pension fund management firms with assets of £400 billion are warning that companies operating in Burma bring a significant economic risk to their shareholders. The statement on December 3 follows a call two weeks earlier by the International Confederation of Free Trade Unions for 250 companies, including Premier Oil and six other UK companies, to disinvest from Burma. Contact Rob Lake, Henderson Global Investors, on 020 7818 2163 (http://www.henderson.com)

European investors prefer SRI Over three-quarters of European investors (77%) would prefer a socially responsible investment (SRI) fund to a traditional one, provided that identical or higher, longer-term returns offset possible lower, short-term returns. The survey, published on November 28 by the business-led network CSR Europe and the European Stock Exchange, Euronext, finds that a third of the 302 financial analysts and fund managers surveyed already offer SRI products. The findings were released in conjunction with a new online resource, The SRI Compass, jointly produced by CSR Europe, Euronext and SiRi Group. The service catalogues the 251 green and ethical funds now offered in Europe, representing Euro 15.6 billion under management – a growth of 41% since 1999. Contact Elena Bonfiglioli, CSR Europe, on 00 32 2 541 1615 (http://www.sricompass.org)

European SRI on net An online network for promoting discussion and research about socially responsible investment is now also accessible on the Internet. Eurosif, launched on November 28 with the support of the European Commission, is spearheaded by the UK Social Investment Forum and its four sister organisations in France, Germany, the Netherlands and Italy. Meanwhile a monthly newswire charting developments in SRI across Europe is now available from the Parisbased company, Terra Nova Conseil, following its launch in October. Contact Helen Barnes, UKSIF, on 020 7749 4880 (http://www.eurosif.info); Eric Loiselet, Terra Nova, on 00 33 1 5633 7500 (http://www.sriin- progress.com)

SRI up in USA Socially responsible investment is on the up in the US, with 62.03 trillion now estimated to be in socially screened portfolios under professional management. This represents a growth of more than a third (36%) since 1999 and shows a growth rate of one and a half times that of the US asset management market as a whole. The figures, released on November 28, form part of the US Social Investment Forum’s 2001 Trends Report. Contact Todd Larsen, USSIF, on 00 1 202 872 5310 (http://www.socialinvest.org)

news in brief

Shareholders will be asked to vote on directors’ pay packages in the future if companies follow non-mandatory recommendations on corporate remuneration released by the government on October 19. Contact DTI press office on 020 215 5377 (http://www.dti.gov.uk)

The number of UK shareholders exercising their voting rights through intermediaries (proxy voting) remains stagnant for the third year in a row, according to PIRC’s annual report released on October 2. In the US, the Washingtonbased Investor Responsibility Research Centre said on November 15 that over 158 social proposals went for proxy vote in 2001 – the highest number in a decade. Contact Alan MacDougall, PIRC, on 020 7247 2323 (http://www.pirc.co.uk); Allie Monaco, IRRC, on 00 1 202 833 0700 (http://www.irrc.org)

Beginning in January, Swiss pension funds are required to report how to carry out their rights as shareholders, particularly on voting practices. The move, passed by the Swiss Federal Council on November 14, follows similar recent disclosure measures in Germany and Australia (see CAB 60). Contact Dominique Biedirmann, Ethos Foundation, on 00 41 22 716 1555 (http://www.geneva.ch)

Editorial Comment

In the last few years, those promoting the case for corporate social responsibility have started hitching their cause to a risk management bandwagon. Turnbull, the last element of the combined code on corporate governance, gave this tendency a boost by using a broader definition of non-financial risk. The newly launched ABI guidelines will do likewise: directors’ training and disclosure in the main annual report and accounts are high-profile issues, requiring the attention of senior executives. In the short term, this focus on risk is fine as a pragmatic move, especially as boardroom credibility is vital right now. However there are real dangers in being too closely aligned to the risk minimisation agenda. Risk managers are all about managing the downside – reducing the cost of things going wrong. Their close cousins are the ethics compliance officers, rooting out bribery and other wrong-doing. Not doing bad things is of course part of corporate social responsibility, but CSR managers should be focusing on the upside – the long-term added value of sustainable business behaviour. We’ve highlighted this distinction before, contrasting FTSE4Good (where companies are excluded if they do things EIRIS does not like) with the Dow Jones indexes (which identify the most sustainable companies in each sector). For individual investors, selecting companies according to ethical criteria actually increases your risk and share price volatility, when compared to a balanced fund representing the market as whole. With higher risk comes the possibility of higher reward, if CSR does indeed pay off long term. But right now, the dotcom slump and then September 11 hit some ethical funds hard, as they could not benefit from the boom in arms company valuations. Whichever way you look at it, it’s best not to equate CSR too closely with risk management.

Reputation

Management Today – Shell pips BP and GlaxoSmithKline as the company most respected for its community and environmental responsibility, in Management Today’s annual reputation survey. Shell also took the overall prize for most admired company, with the second and third places going to AstraZeneca and BP respectively. Each of the top ten companies in 24 industry sectors were asked to rate their peers according to a range of attributes such as quality of management and service, long-term value and capacity to innovate. The results can be found in Management Today’s December edition. Contact Matthew Gwyther, MT, on 020 8267 4967 (http://www.clickmt.com)

Warning from EFQM In a wake-up call to the European business community, the European Foundation for Quality Management is not naming an outright winner in the large business category of its annual awards, held on October 10, because none of the applicants meet all its nine business excellence standards, which include a social impact criterion. Contact John Kelly, EFQM, on 020 7240 7474 (http://www.efqm.org) news in brief

Lufthansa is recipient of the 2001 European Intermodal Award, presented on November 15, for its AIRail pilot project, which encourages passengers to take trains instead of planes between Stuttgart and Frankfurt. Contact Wolfgang Weinert, Lufthansa, on 00 49 69 696 5969 (http://www.lufthansa.com)

Bank of Scotland has the most impressive community service programme in the UK financial services industry, think the judges of the Financial Innovation Awards, supported by The Institute of Financial Services and BT. Bank of Scotland’s Easycash scheme for the financially excluded and its community banking initiatives with The Big Issue are just two of the initiatives noted by the judges. Contact Morag Fenwick on 0131 243 5321 (http://www.bankofscotland.co.uk)

Tesco is the first retailer to win the Mother and Baby Award for Excellence, presented in November for the supermarket’s range of new services for parents, such as its in-store Toddler Club and the youandyourchild website. Contact Isy Foss, Tesco, on 020 8682 2277 (http://www.tesco.com/youandyourchild)

The Worldwide Fund for Nature honoured Johnson & Johnson and Motorola by presenting both with its Gold Panda Award on November 15. The award recognises the sustained support of both companies for the global conservation efforts of the environmental charity. Contact Sharon Jackson, WWF, on 00 1 202 778 9541 (http://www.panda.org)

Rolf Breuer, chief executive of Deutsche Bank and a founding member of the UN Global Compact, received the Global leadership Award from the American Institute for Contemporary German Studies on October 23 for his efforts to promote corporate citizenship. Contact Dierk Hartwig, Deutsche Bank, on 00 49 69 910 43800 (http://www.deutsche-bank.com)

Timberland is this year’s winner of USbased Business Ethics Magazine’s Corporate Citizenship Award 2001 for its ongoing commitment to employee volunteering. Other winners at the award ceremony on November 1 include The Collins Companies in the environment category and the IT company, Chatsworth Products, for its promotion of employee ownership. Contact Marjorie Kelly, Business Ethics, on 00 1 612 879 0695 (http://www.business-ethics.com)

Corporate Citizenship Briefing, issue no: 61 – December, 2001

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