UK companies should be under the same requirement to state their commitment to socially responsible p...
From July trustees must conform with a Government requirement for occupational schemes to state the extent to which they take account of social, environmental and ethical issues in investment.
Craig McKenzie, director of the ethics unit at Friends Ivory & Sime, said: "While pension fund trustees must state their approach to Socially. Responsible Investment (SRI), companies do not have to do the same and the Government therefore is not closing the loop."
Investing in line with SRI makes sound financial sense as well as the added benefit of its ethical dimension because these issues affect earnings, according to McKenzie.
He cited the damage to Perrier following its announcement a few years ago that its bottled water was contaminated with benzene, a carcinogenic product. The company's share price consequently fell by 35%. This was because fund managers bel-ieved that this environmental issue might hurt Perrier's future earnings.
McKenzie said: "They were right, Perrier subsequently estimated that the disaster cost $260m for recall of bottles and for consequential advertising expenditure following severe damage to its reputation."
Many companies are finding they cannot afford to be unethical in their business practices, McKenzie said, especially those with high profile brands in clothing or sportswear. A number of these companies have been criticised for the use of child labour by their suppliers in the third world.
Allegations of these kind can damage the brand and destroy large amounts of shareholder value.
He said: "Traditional ethical investment takes an uncompromising approach to ethics, often putting ethical considerations ahead of financial performance.
"This unorthodox investment approach often raises difficulties for pension fund trustees.
The new evolutionary model starts with orthodox investment management and asks how it can better take account of social, environmental and ethical issues in the course of financial analysis and corporate governance."
A survey conducted by EIRIS indicated that 77% of the public would like their pension fund to adopt an ethical policy, if this could be done without harming financial returns.
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