FEATURE - Pension funds push Big Business to go green
Date: 20-Sep-02
Country: UK
Author: Simon Johnson
As
institutions like the pension funds that control vast swaths
of assets across the globe become more concerned about
corporate labour policies, the environment and human rights
issues companies are being forced to take notice. "The first
signs of an awareness of these issues is beginning to
evolve," said Kirsty Thomas, senior analyst in the
governance and socially responsible investment (SRI) team at
British fund manager Friends Ivory & Sime.
"There is demand from investors...fund managers are
responding to their clients...and when you get sell-side
analysts involved that will really accelerate the process."
It is not so much that investors have grown a conscience
about corporate social and environmental responsibility -
although some do take moral positions.
Rather it is that more and more investors are becoming
convinced that best practice on a range of social, human
rights and environmental issues, can boost a company's
bottom line.
"It is companies which address issues such as child labour
or future environmental legislation ahead of the pack who
will be the leaders of the future," said Mark Campanale,
head of SRI business development at fund manager Henderson
Global Investors.
RISK FACTORS
As a result pension funds, fund managers and analysts are
beginning to include environmental and social risk factors
in evaluating a company's business.
A company implicated in an environmental disaster can suffer
huge damage to its reputation and incur financial costs,
directly affecting its share price. The use of child labour
or policies over the supply of drugs to developing countries
ravaged by HIV-AIDS can get firms into hot water and harm
their brand.
"You should look at a company's sustainability policies as
just another investment filter, it just happens to be social
and environmental," said Reto Ringger, chief executive and
founder of Sustainable Asset Management in Switzerland.
Ringger predicts that ratings agencies will one day grade
firms on the strength of their sustainable policies. Big
pension funds, particularly public funds, will be able to
invest only in companies in the top tiers of ratings, he
said.
Some investors are already flexing their muscles on
sustainability.
In the most obvious case, the huge California Public
Employees Retirement System (CalPERS) decided in February to
pull out of Thailand, Indonesia and Malaysia because of
concerns about a range of issues including labour standards
and human rights.
Although CalPERS had only a fraction of its $143 billion or
so of assets invested in these countries, its disapproval
damaged their image with other investors.
FINANCIAL MODELLING
But there problems for the advocates. According to a recent
Extel survey, only 0.3 percent of analysts include
environmental, social and ethical factors in their financial
modelling.
Some investment banks, such as Britain's HSBC are beginning
to, but it remains difficult to prove that companies which
follow best practice in corporate social responsibility will
out-perform their peers.
And until analysts re-rate companies on this basis, fund
managers won't divert money away from laggards in the field.
"Linking superior corporate social responsibility to
superior financial performance is the Holy Grail," said
Henderson's Campanale.
But he believes the link will be made.
"Over the long-term the cost of capital for companies with
poor performance will be raised," he said.
"We believe every sector, whether it be pharmaceuticals or
oil and gas is going to be hit by the sustainability
debate."