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The conventional wisdom has long been that the more ethical the stance of a company, the lower the returns to shareholders. Socially Responsible Investing (SRI) is an organization in the UK which challenge this view and insists that its members take into account the environmental, ethical and social impacts of their investments. SRI companies point to their share portfolio outperforming the market average. It would seem that events are moving strongly in the direction of these companies. For example, since 3 July 2000 all pension funds in the UK must, by law, disclose whether or not they will take into account the environmental, ethical and social impacts of their investments. Indeed, the 10 largest world banking groups (including Barclays and Royal Bank of Scotland in the UK, Citigroup in the US, West LB in Germany agreed in 2003 to abide by the 'equator principles' when considering future investments. These principles are based on the policies of the International Finance Corporation (p. 127) which advises the banks on major development projects. Banks agreeing to these 'equator principles' will now grant loans only to projects whose promoters can demonstrate their willingness The conventional wisdom has long been tha the more ethical the stance of a company, the lower the returns to shareholders. Socially Responsible Investing (SRI) is an organization in the UK which challenges this view and insists that its members take into account the environmental, ethical and social impacts of their investments. SRI companies point to their share portfolio outperforming the market average. It would seem that events are moving strongly in the direction of these companies. For example, since 3 July 2000 all pension funds in the UK must, by law disclose whether or not they will take into account the environmental, ethical and social impacts of their investments. Indeed, the 10 largest world banking groups (including Barclays and Royal Bank of Scotland in the UK. Citigroup in the US, West LB in Germany) agreed in 2003 to abide by the 'equator principles' when considering future investments. These principles are based on the policies of the International Finance Corporation (p. 127) which advises the banks on major development projects. Banks agreeing to these 'equator principles' will now grant loans only to projects whose promoters can demonstrate their willingness and ability to conduct the projects in a 'socially responsible manner' and according to 'sound environmental management practices'. Environmental impact analyses will be required of projects regarded as high and medium risk in this context, including the impact on involuntary resettlement of loc people. Campaign groups, such as Friends of the Earth, while welcoming such initiatives, are cautious as to what they will mean in practice. For example, the banks have re fused to say whether they would have regarded the controversial Three Gorges Dam in China (now nearing completion) as having been in breach of the principle and therefore ineligible for the loans actually made. The growing corporate acceptance of a need to be more socially responsible is reflected in the launch of a new FTSE 4 Good Index in July 2001 in the UK, using social and ethical criteria to rank corporate performance. All companies in three sectors were excluded, namely tobacco, weapons and nuclear power (representing 10% of all FTSE companies). O the remaining companies, three criteria were applied for ranking purposes: environment, human rights an social issues. If a company 'fails' in any one of these criteria, it is again excluded. Of the 757 companies the FTSE All-Share Index, only 288 companies have actually made it into the index. The FTSE itself has produced figures showing that if this new FTSE 4 Good Index had existed over the five years prior to its launch, it would actively have outperformed the more conventional stock exchange indices. The same has been found to be true for the Dow Jones Sustainability Group Index in the USA. This is a similar ethical index introduced in the USA in 1999. When backdated to 1993 it was found to have outperformed the Dow Jones Global Index by 46%. It was reported in 2008 that annual sales of Fairtrade food and drink in Britain have reached over $350 million, having grown at over 40% per year over the past decade. It has expanded from one brand of coffee ten years ago to around 1000 food stuffs, including chocolate, fruit, vegetables. juices, snacks, wine, tea, sugar, honey and nuts. A Mori poll found that two-thirds of UK consumers claim to be green or ethical and actively look to purchase products with an environmental/ethical association. Refer to Case 2. Why is it suggested that the more ethically and 5 point environmentally conscious firms might actually be more profitable than those which pay little heed to the environment? Your answer For what reasons might we expect UK companies to become more 5 point ethically and environmentally aware in the future? Your
