Investors
April 01 2001
by Briefing teamFTSE4Good launch
A new set of indices is being developed by FTSE International to help the investment community identify and track the performance of socially responsible companies. The FTSE4Good index will rank companies by market capitalisation, not CSR performance, but in order to qualify for listing, they will have to meet certain criteria on issues such as environmental performance, human rights and stakeholder relations. Announced in February, the index will initially comprise four tradable indices, each listing around 100 companies, covering the UK, Europe, USA and Global.
However concerns have been expressed over the basis for exclusion, such as involvement in animal testing. The index criteria are being developed with the Ethical Investment Research Service and the methodology will be reviewed every six months by an expert committee chaired by Co-operative Bank chairman, Mervyn Pedelty. The indices are due to be up and running by the end of 2001. All licensing fees are being donated to UNICEF. Contact Sandra Steel, FTSE4Good, on 020 7448 1821 (http://www.ftse4good.com)
Better pension fund management
The institutional investment community in the UK is being encouraged to sign-up to a 10-point code, which includes measures to increase transparency and professional competence in the management of assets worth more than £1,500 billion. The report, from a commission headed by Paul Myners, chairman of Gartmore and published March 7, also includes recommendations for pension trustees to be paid and for the minimum funding requirement to be replaced with a requirement for greater information disclosure by fund managers. Contact Charles Keseru, HM Treasury, on 020 7270 5188 (http://www.hm-treasury.gov.uk)
Getting tough on boardroom pay
Companies face new requirements to disclose directors' pay and the link with performance, as part of the annual reporting cycle, the Department of Trade and Industry announced on March 7. Secondary legislation will require quoted companies to show how remuneration committees set detailed policy and to publish graphs with performance measurement comparisons, along the lines of existing American reporting. The new rules go beyond Stock Exchange listing requirements. The government will decide whether to go further still, putting boardroom pay to a vote directly by shareholders, when considering the outcome of the Company Law Review. Contact DTI on 020 7215 5954 (http://www.dti.gov.uk)
Norwich Union into SRI
Norwich Union joins the increasing number of financial companies offering ethical investment alternatives, with the launch of an open-ended investment company on February 16. The new OEIC comprises six sub-funds invested according to socially responsible criteria, targeted on education, water management and renewable energy, among others. Contact David Longdon, Norwich Union, on 020 7809 8625 (http://www.norwich-union.co.uk)
SRI funds ride out volatile market
Despite severe market fluctuations, the largest American-based socially and environmentally responsible mutual funds were among the best performers during 2000, according to leading US market analysts Morningstar and Lipper. In January, the Washington, DC-based non-profit, the Social Investment Forum, said that over half of the 48 screened funds it tracks regularly were in the top quartile based on a three year view, a fact confirmed by the analysts, Weisenberger. Contact Todd Larsen, SIF, on 00 1 202 872 5310 (http://www.socialinvest.org) ief
• Iceland, Moss Bros, Blacks Leisure Group and Clinton Cards are the subject of a renewed initiative by the Local Authority Pension Fund Forum, announced on March 29, to persuade UK retail companies to develop policies on overseas labour standards. Contact LAPFF on 020 7247 2323 (http://www.lapfforum.org.uk)
• The financial advice company, Ethical Money, issued a free guide during February, to provide investors with up-to-date information on the ethical investment market. Contact Dion Penston, Ethical Money, on 01772 558 557 (http://www.ethicalservices.co.uk)
• The Ethical Investment Research Service also released an advice booklet during February, entitled The Changing World of Pensions, to explain how different pension funds approach ethical investment. Contact Karen Eldridge, EIRIS, on 01223 528 395 (http://www.eiris.org)
• BP has been criticised for declaring four AGM shareholder resolutions invalid - two aimed at activities in Tibet and Alaska - on technical grounds. PIRC said the move amounted to arbitrary discrimination against shareholders and posed a threat to the company's reputation. Contact Stuart Bell, PIRC, on 020 7247 2323 (http://www.pirc.co.uk)
• Coca-Cola and Pepsico are among many US corporations facing critical shareholder resolutions. At their AGMs on April 18 and May 2 respectively, the soft drinks companies are being urged to adopt rigorous strategies for bottle and can recycling. Contact Lance King, GrassRoots Recycling Network, on 00 1 703 536 7282 (http://www.grrn.org)
Comment
Over the last two years, the Dow Jones Sustainability Group Indices have had a huge impact in grabbing boardroom attention. Senior executives may not grasp the full subtleties of CSR, still less sustainability, but they sure understand the rules of the market - the more people prepared to buy your shares, the higher the price will go. FTSE4Good has the potential to be more powerful still, provided the methodology is got right.
DJSGI seek out the best ten percent of companies, looking at a broad range of factors contributing to sustainability and ultimately making a judgement about whom to include. EIRIS has traditionally worked the other way round, seeking out 'wrong doing' and mechanistically excluding companies on grounds of animal testing, weapons manufacture, alcohol, gambling, environmental accidents and so forth.
Much depends on the advisory committee and the methodology it adopts. If FTSE4Good focuses on how companies are trying to behave, it will prove a powerful spur to improve CSR performance; if it simply separates out the sheep from the goats, based on what companies do, a real opportunity will have been lost.
Ultimately, the new indices are selling a service to investors who will actually decide which approach works best for them. Thankfully there's growing evidence that mainstream investment managers, not just the 'ethically screened' funds, are looking at CSR as a factor in long term commercial sustainability. Hopefully their interest in behavioural factors will prove decisive.