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ABI to upgrade guidelines

January 2007

The trade association for Britain’s insurance industry is to revise its guidelines on the reporting of social and environmental issues in annual company statements.

The Association of British Insurers says that it is generally pleased with how companies have responded to the guidelines it introduced in 2001, but disappointed that overall the rate of compliance has slowed. It is now upgrading the guidelines to take account of recent developments, notably the Companies Act.

Analysis by the association of 580 of the FTSE All Share has shown the number of companies that fully disclosed their environmental and social risks in line with its guidelines last year rose from 18 to 20 per cent (see graph below), while the number making no disclosure fell from eight to six per cent.

But the proportion making a moderate or full disclosure has barely grown since 2005, rising from 59 per cent in that year to 62 per cent in 2006.

The association says that companies have been slow to move from moderate to full disclosure largely because they are failing to use key performance indicators or give information on the inclusion of CSR issues in directors’ training and incentive packages, as stipulated by its guidelines. In addition, companies are said to be weak overall on identifying the material social and environmental risks to their business.

Among the FTSE 100, only five additional companies fully disclosed their social and environmental risks in 2006, compared with 14 the previous year, reflecting the fact that the largest companies have proved the most willing to disclose the information sought by the ABI.

The revised guidelines, due out early this year, are likely to place more emphasis on the need for companies to incorporate social and environmental considerations into their operations. ‘Where these issues are material, they should be fully integrated into the board’s overall strategic approach to management of risks and opportunities and not treated as an “add-on”’, says the ABI.

In a position paper, the ABI, whose nearly 400 member companies hold up to a sixth of all investments traded on the London Stock Exchange, said the revisions were intended ‘not to diminish the importance of CSR issues, which should continue to be included, but to set them in their proper context and relationship to the business.’

The announcement of the ABI guidelines six years ago was one of the first significant indications of growing interest among UK institutional investors in social and environmental risk.

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