FEATURE - Pension funds push Big Business to go green
LONDON - The Earth Summit in Johannesburg may have left many believing big business doesn\'t care about the planet, but some of the world\'s largest investors are prodding corporations to adopt sustainable policies. In the United States alone, around $2 trillion is managed in socially responsible investment funds, up 36 percent since 1999.
As institutions like the pension funds that control vast swaths of assets across the globe become more concerned about corporate labour policies, the environment and human rights issues companies are being forced to take notice. \"The first signs of an awareness of these issues is beginning to evolve,\" said Kirsty Thomas, senior analyst in the governance and socially responsible investment (SRI) team at British fund manager Friends Ivory & Sime.
\"There is demand from investors...fund managers are responding to their clients...and when you get sell-side analysts involved that will really accelerate the process.\"
It is not so much that investors have grown a conscience about corporate social and environmental responsibility - although some do take moral positions.
Rather it is that more and more investors are becoming convinced that best practice on a range of social, human rights and environmental issues, can boost a company\'s bottom line.
\"It is companies which address issues such as child labour or future environmental legislation ahead of the pack who will be the leaders of the future,\" said Mark Campanale, head of SRI business development at fund manager Henderson Global Investors.
As a result pension funds, fund managers and analysts are beginning to include environmental and social risk factors in evaluating a company\'s business.
A company implicated in an environmental disaster can suffer huge damage to its reputation and incur financial costs, directly affecting its share price. The use of child labour or policies over the supply of drugs to developing countries ravaged by HIV-AIDS can get firms into hot water and harm their brand.
\"You should look at a company\'s sustainability policies as just another investment filter, it just happens to be social and environmental,\" said Reto Ringger, chief executive and founder of Sustainable Asset Management in Switzerland.
Ringger predicts that ratings agencies will one day grade firms on the strength of their sustainable policies. Big pension funds, particularly public funds, will be able to invest only in companies in the top tiers of ratings, he said.
Some investors are already flexing their muscles on sustainability.
In the most obvious case, the huge California Public Employees Retirement System (CalPERS) decided in February to pull out of Thailand, Indonesia and Malaysia because of concerns about a range of issues including labour standards and human rights.
Although CalPERS had only a fraction of its $143 billion or so of assets invested in these countries, its disapproval damaged their image with other investors.
But there problems for the advocates. According to a recent Extel survey, only 0.3 percent of analysts include environmental, social and ethical factors in their financial modelling.
Some investment banks, such as Britain\'s HSBC are beginning to, but it remains difficult to prove that companies which follow best practice in corporate social responsibility will out-perform their peers.
And until analysts re-rate companies on this basis, fund managers won\'t divert money away from laggards in the field.
\"Linking superior corporate social responsibility to superior financial performance is the Holy Grail,\" said Henderson\'s Campanale.
But he believes the link will be made.
\"Over the long-term the cost of capital for companies with poor performance will be raised,\" he said.
\"We believe every sector, whether it be pharmaceuticals or oil and gas is going to be hit by the sustainability debate.\"
Story by Simon Johnson
REUTERS NEWS SERVICE
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