Ethical Performance
inside intelligence for responsible business


index needs bigger push, say frustrated investors

June 2005

Business in the Community has been criticised for failing to communicate the results of its corporate responsibility index adequately to institutional investors.

Delegates at a CSR conference in Brussels last month heard suggestions that the index, published in April (EP7, issue 1, p6), is not being publicized with enough vigour – and is therefore failing to register with investors.

Nick Robins, head of socially responsible investment research at Henderson Global Investors, told the European Commission’s responsible competitiveness conference that a lack of communication could account for complaints from some companies that their high ranking in the index does not appear to have registered with investors.

‘I wonder whether Bitc have done any work on communicating the index results to the investment community,’ he said. ‘I’ve certainly not received anything from them, and investors can’t act on something they don’t know about.’

Gareth Llewellyn, group corporate responsibility director at National Grid Transco, which was the second-best index performer behind Westpac, told delegates he had been frustrated by the lack of response from investors in the wake of the index’s publication. ‘I do wonder whether the markets are sending the right signal to companies trying to implement responsible business practices,’ he said.

Robins said that while companies ‘shouldn’t expect the markets to respond to something like that in a single day’, he was concerned that the index was failing to have sufficient impact because it was not being put directly in front of investors, even those that specialize in SRI.

Susan Round, investments manager at Ecclesiastical Insurance Group, one of the largest UK-owned financial services companies and a member of Bitc, later told EP that she felt charges of poor communication of the index were ‘fair comment’. She added: ‘I don’t think Bitc makes much of an issue of it to the investment community, certainly not as much as when it first came out three years ago. It’s fallen by the wayside since then, and if they banged the drum a bit more it would be helpful.’

Patrick Mallon, director of benchmarking and reporting at Bitc, said he would be meeting Robins and Llewellyn as a result of the conference exchanges, ‘to consider whether we should actively court the SRI community’.

However, he said the main purpose of the index was to help companies benchmark their ethical performance rather than to inform investors. ‘It is not an investable index and as such we treat analysts as just one of a range of stakeholders – our key stakeholder is the companies.’

Llewellyn said after the conference: ‘In defence of Bitc they’ve never really sold the index as a financial instrument. Nevertheless, indexes are only going to be useful if achievement in them is explicitly linked in some way to share valuation. Given the amount of work it takes to reach a high position, at some point chief executives are going to question whether it’s worth the effort.’

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