Socially Responsible Investment and the UK Water Sector

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Socially Responsible Investment and the UK Water
Sector
Emma Howard Boyd, Jupiter Asset Management and
Chair of UKSIF Meg Brown, UKSIF Sector Research
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Contents

• The approaches to SRI
• Institutional Investors and Corporate
  Responsibility
• UKSIFs sector note series

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The approaches to SRI
Screening refers to the inclusion / exclusion of
assets on SEE grounds Screening can be
"negative" or "positive" Screening is typically
used by individuals but is also used by
organisations with strict views about SEE
issues. Engagement involves investors seeking
to improve SEE performance through dialogue
and/or voting (eg at company AGMs). Engagement
is typically used by major institutional
investors but is also used by some
individuals, churches and charities.
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Institutional Investors and CR

• Market signaling on SEE issues
• Implicit economic signals
• Explicit shareholder activism

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Institutional Investors and CR

• )

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Key drivers for engagement/activism

• Regulatory pressures
• eg. July 2000 amendment to 1995 Pensions Act
• The funds Statement of Investment Principles
  (SIP) must include
• the extent to which Social, Environmental or
  Ethical (SEE) considerations are taken into
  account in the selection, retention and
  realisation of investments
• eg. Myners Review
• Financial relevance
• Trade Union NGO reports
• Press media attention

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Developments since July 2000

• UKSIF research in 2000 showed that 59 of pension
  funds, representing 78 of assets, had
  incorporated SEE policies into their SIPs
• Engagement (also known as shareholder activism)
  rapidly became the preferred approach to SEE
  issues for UK pension funds
• In 2002 the Institutional Shareholders Committee
  issued a new code on shareholder activism, which
  states that investors should
• Monitor investee company performance
• Intervene where necessary
• Evaluate the impact of their engagement
• Report back to clients / beneficial owners
• and it covers CSR shareholders may want to
  intervene when they have concerns about the
  companys approach to corporate social
  responsibility (ISC, 2002, p4)

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Developments since July 2000 cont.

• Mandatory Operating and Financial Review (OFR)
• The draft Regulations mention particular matters
  that may need to be considered, such as
  information about the companys employees
  environmental matters social and community
  issues business relationships and receipts from
  and returns to members.
• They also mention the need to include analysis
  using financial and other key performance
  indicators including information relating to
  environmental matters and employee matters and
  the need, where appropriate, to include
  references to, and additional explanations of,
  amounts included in the companys annual
  accounts.

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UKSIFs sector note series

• Aimed at UK pension fund trustees
• Focus on potentially material SEE risks
• Series covers largest FTSE sectors
• Also highlights one developing world issue
• eg Access to water and sanitation
• Suggests questions for trustees to ask fund
  managers

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Methodology

• Identify key drivers of shareholder value
• Identify social, environmental and ethical
  impacts
• Overlay value drivers and impacts to identify
  potentially material risks to shareholder value

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Risk 1 Political Uncertainty

• Short term
• Implementation of EU Directives
• e.g. Water Framework Directive

• Long term
• Optimum fuel mix

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Risk 2 Investment in infrastructure

• Short term
• Growth of local power generation

• Long term
• Impact of climate change
• e.g. sewer capacity

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Risk 3 Customer relationships

• Short term
• Rising burden of unpaid bills

• Long term
• Willingness to pay for environmental improvements

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Further Details

• Website www.uksif.org
• Which has links to our members and other sites