Ethical Performance
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the City's interest is growing, but slowly

February 2000

Senior managers think there is a strong link between the environmental and financial performance of their companies, but the City has so far failed to make the connection. However there are now signs this could be changing

If further evidence were needed of the City’s indifference to the ethical performance of UK companies, then a voluminous newly-published study has provided it in spades.

The 600-page Corporate Environmental Performance 2000 report (CEP2000), which sampled more than 200 large and small UK companies and has been produced by a host of organizations working in the field, shows that seven out of ten companies have never been questioned about their environmental performance during talks with financial institutions – even though the vast majority of businesses surveyed (74 per cent) believe the link between their environmental and financial performance is ‘considerable’.

However, even though the groundwork for the study was carried out as recently as June and July, its conclusions already have a slightly dated ring about them. This timely report is rapidly being overtaken by events.

Since it was published late last year, a number of developments have raised awareness of the issue among investors.

Two of the three biggest UK pension funds have announced measures to take greater account of environmental issues when making investment decisions.

Other institutional investors are known to be reviewing the complex relationship between the financial and the environmental performance of companies.

Their interest has arisen in part from the government’s new regulation requiring pension funds to disclose their ethical policies: the deadline for pension fund trustees is now less than five months away.

The recent improvement in the financial performance of ecological and ethical funds, which are heavily invested in clean technology stocks, may also be a contributory factor.

Meanwhile two recent studies, a general one by the Swiss Bank Sarasin and a sector-specific one from the international conservation organization WWF, both claim to have found a positive correlation between companies’ environmental and financial performance.

These developments, of course, by no means invalidate the CEP2000 survey’s conclusion that there is ‘a marked imbalance between the majority of companies that wish to see their environmental performance issues being more closely linked to financial performance and the City’s perceived lack of understanding and inability to draw such issues together.’

Two-thirds of respondents felt the financial community did not understand much about their company’s environmental risk status. Only nine per cent thought the City understood a great deal.

Just over half of the 207 respondents were from private companies. Eighty per cent of these were small or medium-sized enterprises (SMEs). Quoted public companies accounted for another 37 per cent.

Ironically, companies are being pressurised from almost every other quarter to improve their environmental performance.

The study found that more than a quarter (26 per cent) of respondent companies had been targeted by an environmental or community pressure group campaign during the past two years, with large companies (52 per cent) especially under fire. Pressure from consumers and the media has also continued unabated.

But interestingly, although around half (43 per cent) criticised the media and the public for failing to understand risk and lacking technical knowledge, more than two thirds (69 per cent) believed the media and the public did not overestimate the safety and environmental hazards associated with their sector.

Large companies turning over more than £1 billion said they thought that recognition of environmental performance from the City was very important to them (81 per cent).

Nearly two-thirds of the sample (62 per cent) said that their companies were engaging stakeholders more in dialogue.

As a further indication that more companies are turning from environmental to social matters, around half (52 per cent) felt that social and ethical issues were closely integrated with green issues throughout their company.

The report was produced by the Association of Certified Chartered Accountants, Market Tracking International, New Economics Foundation, SERM, The Environment Council and UNEP.




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