Overview of CSR and Communication Responsibilities

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Overview of CSR and Communication Responsibilities

• Julia Dreblow
• SRI Proposition Manager

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Agenda

• Introduction
• What we do
• and why?
• Some tips
• Close

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1) Introduction

• Who am I?
• Friends Provident history and pedigree
• UKSIF
• Our interest in CSR

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2) What we do?
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What is SRI?
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SRI Market Overview

• Pre 1972 - FP excluded sin stocks
• First screened retail fund - 1984
• Pensions legislation - July 2000
• Ethical fund market size c3.5bn
• Number of investors c500,000
• Number with money in FP c250,000
• Number of UK Screened funds c100
• Increasing consumer interest, high adviser
  scepticism
• Pension activity high

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What does FP LP do?
Total Assets c30
Equity assets - reo c11bn
Stewardship 1bn
As at May 2003
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Stewardship vs REO

• STEWARDSHIP
• a range of specialist funds
• use ethical screening to approve or exclude
  stocks
• aims to influence companies via supply and
  demand and dialogue

• RESPONSIBLE ENGAGEMENT OVERLAY
• Automatically applicable
• does not influence stock selection
• aims to influence companies via dialogue

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The (basic) Stewardship Process
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Stewardship Positive Criteria

• Supplying the basic necessities of life
• High quality products which are of benefit to the
  community
• Conservation of energy or natural resources
• Environmental improvements and pollution control
• Good relations with customers and suppliers
• Training and education
• Strong community involvement
• A good equal opportunities record
• Openness about company activities

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Stewardship Negative Criteria

• Environmental Damage and Pollution
• Unnecessary Exploitation of Animals
• Business which supports an Oppressive Regime
• Exploitation of Third World Countries
• Manufacture and sale of Weapons
• Nuclear Power
• Tobacco/Alcohol Production
• Gambling/Pornography

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Responsible Engagement (reo issues 2003)

• Governance
• Corporate Governance Voting
• Bribery Corruption
• Transparency and Performance (previously CSRG)
• Eg lending portfolio impacts
• Environmental
• Climate Change
• Environmental Reporting and Management Systems
• Sustainable Forestry
• Social
• Human Rights eg -Burma campaign
• Labour standards in company in supply chain
• Access to medicines in developing world Inc
  HIV/AIDS in the workplace

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What is REO?Responsible Engagement Overlay

• Responsible Engagement - using our power as
  shareholders to encourage companies to improve
  their social, ethical and environmental practices
• Overlay - a 'wrapper' around any fund

My pension fund should operate an ethical
policy whenever it can do so without reducing
financial return YES 77 (EIRiS 1999)
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How does REO work?

• Engagement, not screening
• No impact on (ie. overlays) investment process
• Mainstream issues only
• Focus on manageable number of companies c 80pq
• Looks for strong business case - aims to support
  shareholder value
• Specialist 11 member in-house team

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reo CSR

• Governance of CSR
• Adherence with ABI guidelines
• Transparency Performance
• Setting targets for managing SEE risks and
  opportunities, focus on mechanisms (identify,
  monitor, manage, verification SEE via training,
  communications, incentive structure etc)

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We want to see

• How is company managing CSR?
• What are the impacts?
• Who are the stakeholders?
• Is CSR report useful for all stakeholders
  (especially the company)?
• Is the report the outcome of an on-going process?
  
• Does the company really understand SEE risks
  opportunities, have they done their homework?
• Or is it greenwash?

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Key issue we face

• Anything material must be disclosed to
  shareholders
• Too many cos still saying SEE is not material
• We believe it IS material and should be reported
  annually with RA

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3) and why?

• Investor demand
• Positive impact on business
• Assessing our CSR means dealing with our core
  impacts ie where we invest

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Some evidence -

•  
• 1997 FP research showed growing opportunity for
  SRI
• 8 Ethical Enthusiasts identified (like strict
  screening, willing to pay extra for ethics)
• 48 Well Wishers identified (want ethical angle
  if it comes at no cost)

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NOP
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June 2001 FP Pension decision maker
research(to assess relevance of SRI for
Stakeholder Pensions sales)

• Once explained 33 said that it was very or
  fairly important for a provider to offer SRI.
• An additional 46 said it was of average
  importance
• ie up to 79
• 25 indicated SRI would be a significant factor
  in their choice of provider.
• An additional 44 indicated it was of average
  importance
• Ie up to 69

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Other research

• 55 of the British public would describe
  themselves as an ethical consumer
• (source the Ethical Consumer/The Co-Operative
  Bank 2002)
•  
• In 1998 28 of the British public believed that
  when buying a product it was very important that
  the company showed a high degree of social
  responsibility by 2002 this had risen to 44.
• (source Annual CSR study MORI)
•  
• 44 of European consumers surveyed are willing to
  pay more for environmentally and socially
  responsible products
• (source MORI/CSR Europe, 2000)

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Main reasons for investing in Stewardship - Unit
holder survey July 2001

• The ethical criteria reflect my concerns
• To help make the world a better place
• To encourage companies to improve their social
  and environmental performance
• The ethical criteria excludes companies I dont
  want to invest in
• Financial reasons

• 33.5
• 17.4
• 16.3
• 11.5
• 5.4

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Stewardship investors view of performance V
ethics Unit holder survey July 2001

• ethics are more important than fund performance
• ethics and fund performance are equally important
• fund performance is more important than ethics

• 36
• 60
• 2

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Stewardship investors of total investment in
screened funds Unit holder survey July 2001

• 51 invest Up to 25 ethically
• 20 invest Up to 50 ethically
• 13 invest Up to 75 ethically

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4) Some tips

• Good management of SEE issues often regarded as
  indicator of good management
• CSR is about transparency NOT disclosure
• Dont be put off by journalists or other
  commentators
• Dont expect it to be easy

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DO and TELL

• Merely doing good things is of little benefit
• Merely telling a good tale is plain wrong (and
  likely to haunt company later)
• Companies need to do both if they are to benefit
  from CSR

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What do we look for when assessing a company?

• Openness and transparency
• Self-critical or self congratulatory?
• Measuring progress meaningful graphs, charts,
  data etc

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WestLB Panmure report More gain than pain
November 2002

• Executive summary excerpts
• Sustainability pays off Soon a matter of
  course
• The findings of our study clearly suggest that
  it can pay to take the sustainability factor
  into account when selecting stocks
• One still encounters considerable scepticism
  when attempting to convince investors of the
  financial advantages of this new investment
  style. However, the hard empirical facts show
  the concern expressed by investors is
  unfounded...earlybird benefits

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5) Close

• Investors increasingly do care (institutions and
  retail)
• Investors dont like it when press searches turn
  up different information from CSR reports
• CSR / SEE being taken increasingly seriously
  across the board