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.
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