Firms that operate in the financial sector, and thus invest in companies with less-than-ethical reputations, have the power to engineer change.
Firms across all sectors are coming under increasing pressure to integrate their CSR principles into their selection criteria for choosing where to invest their pension funds.Yet as the first report in a new series from the UK Social Investment Forum shows (see below) very few companies have taken up this challenge. A hitherto under explored issue with an indirect corporate impact, Briefing wonders, will pension funds become the new supply chain?
The financial community itself is not faring too well either, with most fund managers scoring poorly on transparency as well as disclosure on how ESG issues are integrated into investment decisions (see previous page). Socially responsible investment (SRI) is a growing industry, but is still in its infancy. Like CSR in its early days, it is hugely subjective, after all, what counts as responsible investment?
Shell and BP top many CSR indexes yet critics complain their core business is hugely environmentally destructive. Driven by the rise of civil activism groups like Fair Pensions and rating agencies like Innovest, scrutiny of finance and investment is likely to increase.
With fund managers and private equity that bit further along the investment supply chain, it once again falls to companies to take the lead and demand that those firms they do business with start behaving responsibly.
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Climate change report
HBOS published its Climate Change Report – the first such report by a UK bank – on October 9. According to the insurance and banking group, the report shows that HBOS:
has reduced its CO2 emissions by 65% over two years
is the only UK bank to offset using only 100% Kyoto compliant carbon credits
is the first European bank to carbon label a banking product
is 100% carbon neutral through energy efficiency (80% of HBOS buildings use energy efficient light bulbs), green electricity (HBOS buys 100% renewable energy to power all of its buildings) and carbon offsetting.
The report also announced a number of energy saving initiatives such as plans to announce a green mortgage in 2008 and using energy saving software. The Climate Change Report will be published annually from now on.
Most fund managers are not publicly disclosing environmental and social issues according to a survey by FairPensions, the organisation that campaigns for socially responsible investment of pension funds in the UK. The Fund Manager Transparency and Engagement Survey found that 75% of fund managers were failing on this count even though the companies analysed have transparent corporate responsibility practices in place. Scottish Widows, Barclays Global Investors and Goldman Sachs Asset Management were among the companies that fared the worst, with F&C Asset Management (majority-owned by Friends Provident), Hermes and Morley Fund Management some of those performing much better with greater transparency and commitment to responsible investment. The survey covered the top twenty fund managers in Britain managing £7 trillion on behalf of their clients.
Investment bank, Merrill Lynch, and Trucost, the environmental research organisation, launched the Merrill Lynch Carbon Leaders Index on October 1, which will track companies with the best carbon footprints and make the information available to investors. The aim is to “provide exposure to stocks that are the most efficient in the sector in terms of carbon footprint”. The stocks are covered by the investment bank and the carbon data is provided by Trucost. The index is divided into different sectors in order to take the varying carbon footprints of different industries into account.
Corporate pension funds are not as transparent as they should be according to a report from the UK Social Investment Forum. Only 12% of the approached funds took part in the survey, which explored the responsible investment practices of the pension funds of companies with strong CSR policies. 278 pension funds were approached and only 34 responded with 33 of the responses able to be used in the analysis.
The report – Responsible Business: Sustainable Pension – How the Pension Funds of the UK’s Corporate Responsibility Leaders are approaching responsible investment – was launched on October 4 and found that of the participating funds policy and participation on responsible investment was strong with nearly 75% of respondents having a policy on the issue. The report also offered a number of recommendations and UKSIF called for greater future willingness on the part of corporate pension funds to take part in the survey.
Pension schemes were ranked as platinum, gold, silver, bronze and copper. British Telecom Pension Scheme was the only fund ranked as platinum with Friends Provident Pension Scheme and Stagecoach Group Pension Scheme following in the gold category.
On October 4, the CAF and the Institute of Chartered Accountants in England and Wales called on charities to be financially transparent. The 2007 Charities Online Accounts Awards, a scheme the two organisations run jointly, aims to improve the quality of online reporting in the not-for-profit sector.
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