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March 18, 2003
Oekom Applauds Insurers Employing SRI but Chides Rest of Sector's Non-Transparency
    by William Baue

Lack of transparency prevented the German corporate research firm from conducting corporate responsibility ratings on the majority of global insurance companies.

Few insurance companies are making the effort to disclose their social and environmental performance. That is one of the findings in a recent corporate responsibility report by Oekom Research on the global insurance industry. Oekom, a Munich-based environmental and social rating agency, raises two issues of particular interest to socially responsible investors.

First, the report praised a handful of progressive insurance companies for implementing socially responsible investment (SRI) practices. Second, almost two-thirds of companies in the industry (44 of 70), including all 26 U.S. companies, declined to participate in the rating and are not making enough information publicly available to be rated without their cooperation. This fact raises concern about the transparency of the industry and how much it values corporate social responsibility (CSR).

The report highlighted both the increase in assets invested using SRI criteria and the amount shareowner advocacy encouraging companies to improve social and environmental practices and policies.

"A positive trend for the industry as a whole can be seen, with the volumes of socially responsible investments having risen substantially in the last years," wrote Johannes Nikolopoulos, an Oekom analyst and author of the report .

Norway-based Storebrand, which scored the highest overall rating of "B" on a scale from "A+" to "D-", received kudos for employing negative as well as best-in-class screening in substantial portions of its investment portfolio.

Mr. Nikolopoulos explained that Storebrand is ahead of all other companies with regard to the ratio of sustainable investments to total assets under management. He said that while most insurance companies are well below one percent, Storebrand is above ten percent. Even more remarkable is that if only equity is taken into account, Storebrand is around 50 percent.

The report highlighted the shareowner advocacy practices of UK-based Aviva (ticker: AV.L), which placed second in the overall rating with a "B", and Australia-based AMP, which placed twelfth with a "C".

"As an example, Morley Fund Management [Aviva] is committed to vote against FTSE 100 companies, which do not publish environmental reports," stated Mr. Nikolopoulos. Morley is Aviva's institutional fund management business. "AMP . . . actively promotes the withdrawal of companies from countries like Burma [now known as Myanmar]."

This commendable performance by the few companies employing SRI does not characterize the overall performance of the industry. The industry fared dismally in the environmental rating, with a sector-wide average of "C-". It also did poorly in terms of transparency.

"Most of the 44 companies not rated didn't reply at all," said Mr. Nikolopoulos. "As a result, only 26 Corporate Responsibility Ratings could be conducted, making the insurance sector one of the most non-transparent industries."

Take the case of U.S.-based CIGNA (CI), for example.

"I've checked with several people and no one can recall getting or knowing about a request to participate in this research," said Wendell Potter, CIGNA's vice president of corporate communications and chief corporate spokesperson.

Mr. Nikolopoulos explained Oekom's efforts to contact CIGNA.

"We sent a first mail, asking for both information and a contact, to a Mr. Gregory Deavens on June 13, 2002," Mr. Nikolopoulos told Mr. Deavens is CIGNA's vice president of investor relations. "Unfortunately, we got no reply."

"We then looked for any publicly available information," Mr. Nikolopoulos continued. "Since we were unable to get sufficiently useful information, we sent another mail to Mr. Deavens on August 21, 2002 [in which we] informed him that we would not prepare a rating on CIGNA."

Mr. Nikolopoulos pointed out that the insurance industry does not conceive of itself as having a negative social or environmental impact, which may in part explain the industry's lack of transparency.

"The perceived absence of fundamental social and environmental problems has reduced the pressure to vindicate company activities and has consequently led to a certain neglect of internal and external reporting in many companies," the report states.

"Of course, such non-transparency doesn't necessarily mean that these companies were particularly harmful to either the environment or society," said Mr. Nikolopoulos.

On the other hand, Enron and related corporate governance debacles have shown investors that non-transparency can be a potential danger sign.


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