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new ethical fund writes to excluded companies

August 1999

Legal & General, one of the UK’s largest life assurance and pensions groups, has written to more than 80 of the largest FTSE companies to tell them why they have been excluded from its new ethical fund.

L&G’s Ethical Trust, the second UK ethical fund to use an index tracking approach, will invest only in FTSE 350 companies, but negative screening has identified 81 of them as ethically unsound.

L&G spokeswoman Sarah Kingham said each excluded company has been sent a detailed explanation of the various factors – such as recent breaches of health and safety regulations or pollution incidents – that have led to them being screened out.

‘We’ve written to them outlining our criteria and explaining why they’ve been excluded,’ she said.

‘Most of the companies would be excluded from other ethical funds as well, but we decided that it would be worthwhile writing to them all.

‘We’re hoping that by doing so we’ll perhaps encourage them to look at some of their activities.’ Companies will be regarded as suitable investments as soon as they meet the L&G criteria, Kingham added.

Among the top companies deemed not ethical enough is Severn Trent, which has been cut out for failing to meet strict water pollution criteria. Last year a survey by the Ethical Investment Research Service, which is providing screening for the L&G fund, showed 21 of 40 ethical funds invested in Severn Trent, placing it fourth in a league table of the most popular companies among ethical fund managers.

Cadbury Schweppes (water pollution) and WH Smith (sale of pornography) also fail to meet the L&G criteria, as do Tate & Lyle (water pollution) and Barratt Developments (for health and safety infringements).

Michael Hayden, head of savings and investments at L&G, said the fund’s highly prescriptive approach has been designed to provide ‘quantifiable criteria’ that will give investors a clear idea of the fund’s stance. ‘By taking a methodical approach we hope to appeal to investors who require clarity and certainty, avoiding reliance on the subjective judgement of a committee and fund manager,’ he added.

The fund, launched on 5 July by L&G Unit Trust Management and available as an ISA, will not invest in companies that, among other things:

derive more than 10 per cent of their reported annual turnover from gambling

derive any turnover from intensive poultry or pig farming

have been involved in the sale or production of weapons systems

own or operate nuclear power stations

have at least a 5 per cent share of the UK car or private commercial vehicle manufacturing sectors

L&G claims the portfolio it has chosen would have outperformed both the FTSE 350 and the FTSE 100 over the last five years: its portfolio would have grown in value by 123 per cent, compared with 97 per cent for the FTSE 350 and 110 per cent for the FTSE 100.




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