Ethical Performance
inside intelligence for responsible business


engaging FP puts pressure on the City

June 2000

One of the UK’s major insurance and investment groups has announced it is to monitor the ethical performance of its entire portfolio of equity assets.

In a move that is likely to increase pressure on fund managers to take more account of the social, environmental and ethical performance of companies when making investment decisions, Friends Provident (FP) will adopt a ‘responsible engagement overlay’ approach to its £15billion of equity investments.

That will mean questioning companies on their social and environmental record, pushing for improvements and, in some cases, lodging critical resolutions at annual meetings.

FP already employs engagement techniques across its ethical funds, which are worth £2.5bn. Its ethical fund managers also use investment screens to exclude companies that fail to meet certainethical criteria.

The decision to extend the engagement approach across its entire equity portfolio means it will now engage with about 80 companies each year, rather than 20.

Karen Eldridge, head of client services at the Ethical Investment Research Service, said the move was an important one. ‘The fact that FP are putting the weight of all their investments behind their engagement activity will give them more clout in terms of engaging companies, and although they are not one of the biggest players in fund management terms, I’m sure this will make some of the really big players, such as Phillips and Drew, examine what they should be doing in this area,’ she said.

The Financial Times described the move as ‘the most significant step by any financial institution to put ethical issues on the business agenda’. Craig Mackenzie, head of the ethics unit at Friends Ivory & Sime, the asset management arm of FP, said he expected that this method of evaluating companies for investment purposes would be taken up by all City investment firms.

‘My expectation is that this kind of approach will be adopted by all of them within the next five years’, he said.

‘Just as the major companies have shifted away from doing nothing on social responsibility over the past ten years, so the investment community will have to do so. This is a prototype, or a best practice model, for all investors.’

Mackenzie added: ‘We have already been expanding the number of companies we engage with, but this will greatly increase the number of companies we have discussions with’.

The new engagement policy will initially cover four key areas of social responsibility: human rights, labour standards, the environment and climate change.

Scottish Equitable has launched what it claims is the UK’s first socially responsible fund for income investors.

The UK Socially Responsible Income Fund will invest exclusively in corporate bonds, initially those of three companies: Asda, Bank America and Tesco.

Scottish Equitable will use a ‘light green’ screening approach to identify suitable companies. This will involve choosing companies that are best in class and favour those that act with greater social responsibility in five areas: humanitarian policies, the environment, employment and corporate policies, community involvement and animal welfare.

However, companies involved in arms or tobacco manufacture or ‘animal cruelty’ will be automatically excluded.

The in-house social responsibility investment team that works on Scottish Equitable’s five existing ethical pension and insurance funds, will carry out the research.


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