UK: Corporate Social Responsibility & The ABI

Last Updated: 16 January 2002
Article by Richard Sharpe

Co-written by Adam Fenner

The Association of British Insurers, (the "ABI"), has published a new report on the relevance of corporate social responsibility ("CSR") and issued an accompanying set of investment guidelines. The following constitutes an examination of the concept of CSR, its current prominence in the corporate realm, and the possible impact of the ABI’s recommendations.

Corporate Social Responsibilty - An Introduction:

The notion of CSR is one that is increasingly in the ascendancy. In essence, it is concerned with a company’s awareness and handling of social, ethical and environmental matters ("SEE matters"). These matters harbour potential risks, detrimental to a company’s performance, and it is the minimisation of a company’s exposure to those risks, that is at the crux of CSR.

SEE matters encompass a wide range of issues such as human rights, employee rights, community involvement and environmental protection. The individuals and groups whose interests lie at the heart of those issues are referred to as stakeholders, and maintaining their confidence is paramount to the successful integration of a CSR programme. The ABI’s report, Investing in Social Responsibility – Risks and Opportunities, suggests that there are two distinct advantages borne from the adoption of CSR policies.

The first is that shareholders need to be satisfied that a company is actively managing the serious risks posed to it by various SEE matters. Serious financial penalties can be incurred and thus shareholder value diminished, by failure to address issues such as inadequate working conditions or pollution of the surrounding environment. Those failing to implement effective risk management strategies risk diminishing their appeal to potential investors. The ABI’s report is ominous in this respect, stating:

Ultimately, companies which do not engage in this process will incur a higher cost of capital.

The report’s second argument for CSR centres on the competitive advantage that it might afford a company, though by the ABI’s own admission such an advantage has yet to be established conclusively. The report acknowledges that the nature of the issues involved make it hard to demonstrate causal connections, but does point to the existence of "a growing body of evidence" to support their argument. They cite by way of example, greater stakeholder loyalty, lower operating costs, higher productivity and quality and reduced share price volatility as potential benefits of embracing CSR. By way of example, the report states that The Co-operative Bank calculated that its firm stance on SEE matters made it £16million better off in 2000. Furthermore, the extra profits arose despite the Bank having turned down 105 account applications due to the ecological impact of the applicant’s business.

Current Initiatives & The Pressure To Comply:

With the publication of the ABI’s report and investment guidelines (which will be looked at later), the case for promoting CSR has become ever more compelling. However, the pressure to comply is not restricted to that which emanates from the ABI. Recent legislation has also furthered the cause. An amendment to the 1995 Pensions Act that was passed by the Government in 1999 requires all pension fund trustees to consider social, ethical and environmental issues. In addition, trustees are required to include commentary in their annual statement of investment principles, which describes the extent to which SEE matters determined their choice of investments. The ABI’s report noted that many trustees delegate this task to fund managers, and this has had the effect of fostering the development of socially responsible investment, ("SRI").

Another major CSR development was the launch of the FTSE4Good index, in July 2001. It comprises approximately seven hundred companies, the majority of which are relatively small quoted companies in the FTSE All-Share. The official web site states that "FTSE4Good is a series of benchmark and tradable indices facilitating investment in companies with good records of corporate social responsibility." Accordingly, only those companies who satisfy certain SEE-based criteria are eligible for admission. Nestlé for example, failed to secure its inclusion on the index as a direct result of marketing breast milk substitutes. The constituents of the FTSE4Good index are determined as follows:

  1. A company must be a constituent of the starting universe indices such as the FTSE All-Share Index;
  2. Companies operating in excluded industries – tobacco, weapons systems, nuclear power – are removed form the starting universes to give the eligible universe;
  3. Once the eligible universe has been determined, each company is screened according to the FTSE4Good selection criteria; (the criteria cover issues such as human rights, environmental sustainability, management systems and policies on social issues and stakeholders);
  4. After the index constituents have been determined, the indices are constructed according to FTSE’s index calculation methodology.

Also of note is the increasing prominence of CSR outside of the UK. The EU published a Green Paper on the topic last year that noted the impact of the UK’s Pension Act amendment, and advocated similar legislative adjustments in other Member States. Further afield, the US launched the Dow Jones Sustainability indices in 1999 and has embarked on a bilateral project with the UK on security and human rights in the oil and mining industries. The ABI’s report also points to strong growth in the development of CSR in Asia and the UN’s launching of the Global Compact, an initiative designed to encourage responsibility among multinationals. This world wide concentration on SEE matters is testament to the timely nature of the ABI’s report and resultant guidelines.

The Abi Investment Guidelines & Their Potential Impact:

As noted above, the ABI has issued a stern warning to company boardrooms throughout the U.K. that failure to comply with their guidelines (which are examined below) will lead to difficulties in attracting investors. This is no empty threat. ABI members manage funds worth in excess of £1 trillion, which represents 40% of all money invested in London. The report reinforces its message by stating:

Shareholders want to see that companies are managing such risks. Concerned investors will apply pressure to those which are not and reward those which are.

The guidelines seek to give investors that reassurance, by prescribing the minimum level of information that must be provided by companies with regard to SEE matters. Thus they take the form of certain disclosures which investment institutions would expect to see included in the annual report of all listed companies. The Disclosure Guidelines take the following form, and are intended by the ABI to apply to all companies regardless of size:

With regard to the board, the company should state in its annual report whether:

    1. The Board takes regular account of the significance of social, environmental and ethical (SEE) matters to the business of the company.
    2. The Board has identified and assessed the significant risks to the company’s short and long term value arising from SEE matters, as well as the opportunities to enhance value that may arise from an appropriate response.
    3. The Board has received adequate information to make this assessment and that account is taken of SEE matters in the training of directors.
    4. The Board has ensured that the company has in place effective systems for managing significant risks, which, where relevant, incorporate performance management systems and appropriate remuneration incentives.

With regard to policies, procedures and verification, the annual report should:

    1. Include information on SEE-related risks and opportunities that may significantly affect the company’s short and long term value, and how they might impact on the business.
    2. Describe the company’s policies and procedures for managing risks to short and long term value arising from SEE matters. If the annual report and accounts states that the company has no such policies and procedures, the Board should provide reasons for their absence.
    3. Include information about the extent to which the company has complied with its policies and procedures for managing risks arising from SEE matters.
    4. Describe the procedure for verification of SEE disclosures. The verification procedure should be such as to achieve a reasonable level of credibility.

Future Developments:

Companies would be well advised to take note of the ABI’s recent contribution to CSR. The report and guidelines seem likely to have a significant impact on the UK investment market, but whether they bite deep or not, the international march towards CSR will continue to gather pace. Domestically, matters will be taken a step further when the new Companies Act comes into force. The final report of the Company Law Review group published last year and currently available on the DTI’s web site, indicated that directors will need to report annually on social and environmental matters, and will need to recognise, where relevant:

the importance of relations with employees, suppliers, customers and others, the need to maintain a reputation for high standards of business conduct, and the impact of their actions on the community and the environment.

 

The content of this article does not constitute legal advice and should not be relied on in that way. Specific advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Authors
 
In association with
Related Topics
 
Related Articles
 
Up-coming Events Search
Tools
Print
Font Size:
Translation
Channels
Mondaq on Twitter
 
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
 
Email Address
Company Name
Password
Confirm Password
Position
Mondaq Topics -- Select your Interests
 Accounting
 Anti-trust
 Commercial
 Compliance
 Consumer
 Criminal
 Employment
 Energy
 Environment
 Family
 Finance
 Government
 Healthcare
 Immigration
 Insolvency
 Insurance
 International
 IP
 Law Performance
 Law Practice
 Litigation
 Media & IT
 Privacy
 Real Estate
 Strategy
 Tax
 Technology
 Transport
 Wealth Mgt
Regions
Africa
Asia
Asia Pacific
Australasia
Canada
Caribbean
Europe
European Union
Latin America
Middle East
U.K.
United States
Worldwide Updates
Registration (you must scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions

Mondaq.com (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of www.mondaq.com

To Use Mondaq.com you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.

Disclaimer

The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.

General

Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions