May 28, 2008
Large UK Companies Put Their Best Foot Forward
by Anne Moore Odell
New study of the FTSE 100 finds most companies, but not all, are improving their performance on
environmental, social and governance issues.
Responsible investors do make a difference reports the UK-based research firm EIRIS in their newest study that tracks FSTE 100 companies over
the past five years. "FTSE100 Snapshot: Trends in ESG performance" discovers that most of the UK's
largest companies have made significant progress on environmental, social and governance (ESG)
matters, especially environmental policy development.
especially large institutional investors and pension funds, have helped drive FSTE 100 companies to
increase their corporate responsibility. With the growing global awareness of climate change,
investors are one of the key factors in companies improving their response to environmental issues
"In the UK, you have a lot of institutional investors who are putting
pressure on companies to respond to climate change and this affects environmental policies," said
Stephen Hine, head of responsible investment development at EIRIS.
"Investors are joining
together on climate change, joining, for example, the Carbon Disclosure Project, based in London and IIGCC-Institutional Investors Group on Climate
Change. You also have pension plans that are adopting responsible investment, looking at ESG
issues. Many of these large plans invest in FSTE 100 companies, and the companies are under
pressure to respond," added Hine.
EIRIS reports the number of companies at the very top of
the environmental policy scale is growing rapidly. In 2003, 4% of FSTE 100 companies were assessed
with an exceptional environmental policy. This percent jumped to 16% of FSTE 100 companies in 2007.
EIRIS examined corporate environmental policies, looking at their objectives and targets, the level
of board responsibilities, and policies covering energy use, emissions, and waste.
Stephanie Maier, head of research at EIRIS and author of the study, told SocialFund.com, "I
think that we are seeing more companies seeing the competitive advantage to being leaders in
corporate responsibility. There are a number of investors, institutions, and companies looking to
see to who is best in class, and these largest companies are spending more time and money on their
Improvement has also been seen on human rights, and supply chain
management. EIRIS rated corporate human right policies, investigating companies to see if they have
clearly stated policies on human rights at a board or senior manager level. The snapshot also
looked at companies' commitment to incorporate human rights policies into contracts with major
partners or suppliers.
However, EIRIS's snapshot also notes that there is a minority of
UK's largest 100 companies that are lagging behind their large-cap peers on ESG issues. Five
percent of companies still have an inadequate rating of their environmental policies while 33% of
all companies still have inadequate or weak reporting.
"There are some companies that
haven't gotten off the starting blocks yet," said Maier. "It is a concern that even a minority of
these companies haven't moved, as we are looking at the largest companies in the UK."
areas that have seen the least improvement over all are board diversity, environmental disclosure,
and equal opportunities.
In 2007, the UK revised the "Companies Act" and now requires
companies to report "to the extent necessary" on non-financial factors that could impact their
bottom line, including on their environmental policies. "This is reinforcing that the government
thinks that corporate reporting is important, " said Hine.
Although the UK has passed
legislation regulating the reporting of non-financial information and workplace equality, some
companies are still lagging behind their peers.
The motivation to increase corporate
responsibility is also coming from the companies themselves, the report finds, with companies
realizing that being a leader on ESG issues can provide a competitive advantage.
SocialFunds.com, "There is a growing number of ESG funds, special funds, and mainstream funds that
make it a habit to engage with companies, and companies are getting used to being asked these
questions as a matter of course. Analysts are asking questions about the financial impact of ESG
Looking at growing ESG trends, Hines pointed to increased investor involvement
over human rights and supply chain issues. Water is another important area for socially conscious
investors to look at, as climate change configures water patterns and more conflicts arise over the
availability of water
"The other question raised by investors is, what role should
companies have in helping alleviant poverty overseas, given worldwide disparities?" added Hine.