Last July, the Government introduced the Statement of Investment
Principles (SIPs), which required institutional investors to disclose
the social, environmental and ethical polices of their occupational
The move was welcomed by stakeholders increasingly interested in the
ethical balance sheet of a company.
'There has been a change in the model of business success,' says John
Drummond, a Corporate Culture director: 'Instead of focusing on
short-term financial performance, there is a recognition that the value
of a business is linked to intangibles, such as customer loyalty,
company strategy, employee skills, and the management of risk and
This view has been endorsed by the findings of several recent surveys.
According to a study of corporate social responsibility among opinion
leaders, conducted by Burson-Marsteller in partnership with the Prince
of Wales Business Forum, 42 per cent of those interviewed agreed
strongly that corporate reputation would affect share prices in the
future. In addition, 66 per cent agreed that corporate citizenship would
be of importance in the future.
Similarly, in a recent Social Investment Forum survey, Deloitte & Touche
found that just 14 per cent of companies did not take socially
responsible investment polices (SRI) into account, while a global
research project carried out by SWR Worldwide into corporate reputation,
found consumers would 'punish' their favourite brands for bad corporate
These finding are supported by Echo Research in a report entitled
'Giving Back: Corporate Social Responsibility 2000/01'. The
international communications research company found that in the future,
investors 'will look closely at the nature of the business they are -
through the injection of funding - helping to succeed.'
So all the evidence suggests that social and environmental
responsibility will indeed affect the bottom line. Companies are
realising that if they want to retain public confidence, they must
implement socially responsible policies. It is a view encouraged by the
Government, albeit on a voluntary basis. All major UK businesses are now
being asked to report on non-financial matters.
While there is no indication that non-financial reporting will become
mandatory, there are several compelling reasons why companies should put
the necessary steps in place now. Last November, the Company Law Review
produced its latest consultation report entitled 'Completing the
The report confirmed earlier proposals for an Operating and Financial
Review (OFR), which would go beyond financial performance and require
businesses to report on broader aspects of performance including 'wider
relationships, risks and opportunities and social and environmental
In December the Turnbull Commission report on corporate governance came
into effect. Listed companies must now comply with recommendations on
risk management areas such as health, safety and environment, and
reputation. The report was unequivocal: social and environmental factors
should be included in risk assessments along with conventional financial
'This will encourage fund managers to address the financial implications
of the social and environmental risks of a company,' says John Levick,
VLP managing director. 'It may mean that companies that do not take the
environment seriously will see their share price dive because dangerous
exposure to environmental risks will be seen by the City as evidence of
failure to manage risk in general.'
Nick Bent, manager of B-M's CSR unit, agrees. 'The Turnbull report means
that companies will have to take a broad, sophisticated approach to
risk, explicitly including environmental matters and threats to
reputation. Reputation is a key element of the intangible assets of a
company, and hence its value.'
Bent says the PR industry can help companies make their environmental
and social policies more accessible to investors and financial analysts:
'Some companies are finding their time is being consumed as they are
bombarded with questionnaires by investors and pension funds. Hopefully,
this should encourage companies to make the information publicly
available online, in a user-friendly format.'
Bent adds that PR can also help build the social and environmental
credentials of a company into the corporate brand.
Weber Shandwick chief executive of corporate, consumer and healthcare
Chris Genasi also believes the PR industry can help provide investors
with accessible and engaging information: 'Agencies can help clients
become aware of their responsibilities and of the issues and
opportunities involved. They can also provide broader advice on how to
communicate a company's achievements to all stakeholders.'
Company reports are the most obvious way in which PR agencies can
present information on a company's social and environmental credentials.
While more enlightened companies have been producing company reports for
years, ethical investment is still a relatively new phenomenon and most
companies will need to be guided through the appropriate channels of
communication and presentation of content. Furthermore, the introduction
of the SIPs means that today's company reports will have a sharper focus
in order to respond to the needs of the financial community.
John Orme, a Countrywide Porter Novelli director, warns that unless
social and environmental values are 'locked into the heart' of a
business, institutional investors will consign company reports to the
bin: 'The key word here is behaviour, not policy promises. By putting an
organisation's ethical and social behaviour in the context of its
commercial and business issues, stakeholder audiences can get a more
Mike Groves, partner at Great Circle, which specialises in social and
environmental reporting, says new standards are being set in reporting:
'The days of pretty pictures and 'greenwash' are over. Reporting and
disclosure is now a much more sophisticated affair.'
Drummond has set up a social and environmental reporting unit with
design agency Loines Furnival: 'The new unit will focus on all aspects
of corporate responsibility, including publications, the web and
preparations for the OFR for those companies who wish to be ahead of the
Clearly, the stakeholder audience is wider than just institutional
investors. While the list will vary from sector to sector, stakeholders
with an interest in the social and environmental policies of a company
include employees, the media, NGOs, investors, potential recruits
(especially graduates), politicians, the local community and
The challenge for PR is to demonstrate that a company's commitment to
social and environmental policies adds value, particularly to the
investment community and shareholders. Caring policies are all very
well, but unless they affect the bottom line, there is little incentive
to adopt them or flag them up.
It is here the skill of PR practitioners will be critical. Take the area
of staff retention. If there has been an increase as a result of a
benevolent employment policy, it would be the job of PR practitioners to
demonstrate that recruitment and training costs will be lower. A
progressive approach to social and environmental issues could save money
through reduced waste and energy use. Other areas PR practitioners could
flag up include attracting investors, clients or customers to a company
that has a better ethical and environmental record than its
Bent says: 'Companies can be feted for having ethical credibility or
persecuted for a perceived lack of it. PR has a role to play in ensuring
that a company's ethical and environmental efforts are recognised to
ensure they reap the rewards of the benefits.'
But for PR practitioners to work to the best of their ability, there is
an obvious need for standardised and accurate information on the ethical
policies of companies.
At present, several standards exist based on a credible third-party
certification process, including the ISO 14001 environmental standard.
In addition, Project SIGMA, a sustainability management system standard,
is being developed by the British Standards Institution (BSI), Forum for
the Future and AccountAbility. Project SIGMA is being funded by the DTi
and will be supported by the DETR, DfEE and DFID.
Elsewhere, the Business in the Environment Index monitors and ranks
FTSE100, Business in the Community, and Business in the Environment
members on their environmental management systems, while the Dow Jones
Sustainability Index ranks companies on their environmental and social
Companies can also judge their own ethical policies. Morley Asset
Management has a matrix for judging sustainability, and it has recently
added a section on corporate governance policy.
NGOs can also act as unofficial watchdogs of corporate honesty. Friends
of the Earth regularly reveals inconsistencies between a company's
environmental policies, its pension investment criteria and trade
association policy positions.
Two new benchmarks will make life even easier for institutional
investors, as well as acting as a wake-up call for companies to get
their ethical and environmental houses in order. The Pensions Investment
Research Consultancy (PIRC) has just launched a SRI service which claims
to provide institutional investors with objective analysis and support
to pursue socially responsible investment policies.
According to the PIRC, institutional investors need to monitor how well
companies are managing their stakeholder relationships in addressing the
corporate responsibility agenda. The SRI Service provides the investor
with a range of news, briefings, seminars and company profiles to help
fill their knowledge gaps.
The service is based on a company's stakeholder relationships at a local
and international level. These are the environment, including corporate
policies; employment, including training programmes and equal
opportunities; human rights, including involvement with repressive
regimes; community policy, including charitable and political donations
plus corporate governance, including best practice compliance and
Perhaps the biggest boost to the issue of CSR will come this summer when
the FTSE launches the FTSE4Good indices. All licensing revenues from
FTSE4Good, which will set a global standard for socially responsible
investment, will be contributed to UNICEF.
Mark Makepeace FTSE chief executive officer says: 'With the increasing
globalisation of the investment community, FTSE4Good represents a
critical step forward by providing a consistent standard by which to
judge companies' socially responsible credentials.'
Using data provided by the Ethical Investment Research Service (EIRIS),
the FTSE4 Good committee will identify companies with the strongest
records of corporate social and environmental performance. They will be
assessed on criteria including the environment, human rights and social
issues and stakeholder relations. Grounds for exclusions are likely to
include the manufacture of tobacco products.
The standard for entry to the FTSE4Good indices will be consistent
across countries and sectors and will apply to the companies regard-less
of their size and financial performance.
There is little doubt that social responsibility is set to become part
of the corporate landscape. And as the custodians of reputation, PR
practitioners are uniquely placed to demonstrate how an ethical balance
sheet can add value.
As Groves says: 'The management of social and environmental issues are a
key facet of corporate reputation and reputation is tied up with the
value investors place on a company.'
FLEXING - SHAREHOLDER MUSCLE
Where once investors gave companies with questionable ethical and
environmental policies the cold shoulder, nowadays the same investors
are more likely to be attending their AGMs.
'It is the principle of positive engagement,' explains John Levick, VLP
managing director. 'There is a move afoot among institutions not to
exclude companies but rather to use the shareholding they have to effect
an improvement in a company's performance.'
It is a strategy deployed by NGOs, such as Friends of The Earth (FoE)
and Greenpeace. Greenpeace last year put forward a shareholder
resolution at BP's AGM to invest in renewable energy rather than carry
out exploration work in an Arctic wildlife reserve.
FoE acting projects and campaign director Duncan McClaren says: 'Trading
ethically used to be based on 'screening' or not investing in certain
companies. With a policy of engagement, companies will invest in a
company but use their influence to change management practices.'
Shareholder resolutions are put forward at AGMs when institutional
shareholders are present. It is the job of NGOs to persuade investors to
vote with them, though in reality investors generally vote with the
company. And often a company will prepare a sop in advance to take the
wind out of an NGO's resolution.
'There is often a lot of political horse trading,' confirms McClaren.
'We don't expect to win resolutions, but they can be a very effective
tool to draw the company's attention to a particular issue. And anything
that impacts on the reputation of a firm can devalue its shares.' FoE,
which has a pounds 30,000 share-holding in Balfour Beatty, is preparing
a shareholder resolution in conjunction with the Ilisu Dam Campaign to
put to the construction company's next AGM on 2 May.
Balfour Beatty would like to be granted an export credit guarantee from
the Government to support its bid to join a consortium of construction
companies working on the Ilisu Dam in Turkey.
According to McClaren, the controversy lies in the location of the dam.
It lies within the Kurdish part of Turkey and the Kurds view its
construction as part of a packet of repressive measures the Turks are
inflicting upon them.
McClaren believes that the dam could also pose a potential environmental
hazard and that once constructed, Turkey would be in a position to
control the downstream waterflow to countries such as Syria: 'It is an
international water course and we are saying the Turks should consult
with downstream states.'
FoE's resolution is that Balfour Beatty should adopt the principles laid
down by the World Commission on Dams. This, however, would be akin to
withdrawing from the entire project. Swedish construction company
Skanska recently adopted the World Commission's principles and as a
result has withdrawn from the construction coalition.
But victory is not judged by a company's adoption of a resolution.
Rather, the objective is to draw attention to ethical and environmental
concerns through flexing its shareholder muscle.