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October 30, 2001
British Insurers Demand Corporate Social Responsibility
    by Mark Thomsen

The Association of British Insurers recently announced that its members will expect companies to disclose how social, environmental and ethical risks are being handled.

Last week, the Association of British Insurers (ABI) continued the UK's embrace of corporate social responsibility by asking companies to disclose their external social, ethical and environmental risks and their policies for managing those risks. The ABI's new guidelines are intended to be a relatively painless method of increasing corporate transparency.

The guidelines follow an announcement made earlier this year by major London-based asset manager Morley Fund Management that it would begin requiring large UK companies to publish environment reports. Corporate social responsibility in the UK received a significant boost last year when the government declared that pension fund trustees had to disclose their policies on socially responsible investment.

The ABI's announcement reflects its view that corporate social responsibility is fundamental to modern business.

"[The guidelines] represent an important opportunity for investors and companies to work together both to protect shareholder value and improve understanding of corporate social responsibility," said Mary Francis, director general of the ABI. "Successful, responsible companies are good for society and for their shareholders."

The over 400 members of the ABI, a trade association for Britain's insurance industry, account for more than 20 percent of stock market investment in London. Such clout ensures that companies will take the guidelines seriously.

The guidelines ask companies to disclose information about the social, environmental and ethical risks and opportunities they face. For example, the guidelines ask companies to disclose board-level identification and assessment of risk, descriptions of company policies for managing risk, and descriptions of procedures for verifying company disclosures.

"SRI disclosure will provide investors with confidence that a company understands the risks it faces and is positioning itself to deal with them," said Chris Mellor, chief executive of AWG, one of the UK's largest water utilities. "The ABI's guidelines are a crucial and valuable step in helping companies prove to themselves and others that they are up to the mark."

The ABI guidelines may preempt the introduction of mandatory government regulation. One of the objectives in developing the guidelines was that companies could follow them without incurring huge costs.

"We are anxious to avoid unnecessary prescription or the imposition of costly burdens," said Peter Montagnon, ABI head of investment affairs. "Our focus is on enhancing value in companies through effective response to risks."

The ABI hopes the guidelines will serve as a basis for helping companies develop "best practices" in handling risks and opportunities regarding social, environmental and ethical issues. While the guidelines do not require companies to verify their disclosures, the ABI views independent verification as a potential best practice of the future.

The ABI has also published a report that supports its approach to corporate social, environmental and ethical risks and opportunities. Entitled "Investing in Social Responsibility: Risks and Opportunities," it is authored by Roger Cowe and is available on the ABI's website.

It seems more UK companies are seeing the value of placing a higher priority on social, environmental and ethical issues. Said AWG's Mr. Mellor, "I believe that understanding environmental and social costs will be a major factor in building business success over the coming years - through increased operational efficiency, better services and, ultimately, shareholder value."


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