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Briefing
January 2000
Investing In a Better Future - YourMoney and the Global Environment
IntroductionPeople buy financial products such as pensions andinsurance policies to provide security for themselves ortheir family. They can provide income for later in life orcover for unforeseen crises. There is a problem however,our personal security and that of our families is beingthreatened by global insecurity. Companies with poorenvironmental and ethical policies are contributing toenvironmental damage and human rights abuses and it isour money that is often providing the financial means forthem to do so.
Firms like Exxon, ICI, Rio Tinto, Monsanto and Shell seeshareholders as their key if not the most importantbusiness stakeholders. They claim that to meet theirshareholder expectations they must maximise their abilityto compete in the global market place. This often meansinadequate investment in environmental protection orstrategic investment for the future. Minimising costs andmaximising profits is a priority that has the support of theinstitutional investors that manage investment and pensionfunds, whose bonuses and salaries reflect short-term
financial performance measures. These are the peoplethat are paid to manage your money and look after yourfuture. The fate of the global environment is in large partunder their control, and yours too - because it is yourmoney and you are their client.
Far from simply providing financial security, ourinvestments can help protect the environment, preventtoxic pollution and put an end to dangerous climatechange, extinction of species and loss of sensitiveeco-systems. Our pensions and other investments canalso help to ensure that the world becomes a fairer andbetter place for all to live, not one where the majority ofpeople are excluded from the benefits of development.Modern financial planning therefore means much morethan just securing a good financial deal. Our pensionsand other investments will directly affect the futurequality of our lives and what kind of world we will beleaving for our children.
The good news is that today it is much easier to addressour environmental and ethical concerns at the same timeas looking after personal finances. This briefing sets out
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how you can use your money to help achieve not only thefinancial security you want for yourself and your family,but also for the world you live in.
Is your money being put togood use?
Many of us don't think about what happens to the moneywe give to others to invest on our behalf. And yet yourmoney might be working against the very things you valueand care about. It might be funding companies thatpollute illegally, contribute on a major scale to climatechange, destroy primeval forests or commit human rightsabuses. If you have not carefully chosen to invest in aspecial ethical financial product, it is very likely that thisis exactly what some of your money is being used for.Friends of the Earth (FOE)’s recent investigation into theshares held by the UK's major insurance companiesshowed that all of them invest in companies whichFriends of the Earth has actively campaigned againstbecause of their bad environmental performance.
Much of the money invested in companies like Exxon,ICI, Glaxo Wellcome, Monsanto and Rio Tinto,ultimately belongs to ordinary members of the public.Unfortunately, most people have little idea what thesecompanies are up to.
If you have purchased a financial product such as apersonal pension scheme, belong to an occupationalpension or have other money invested on your behalf, orintend to in the future, why not use your financial muscleto press for positive change? Whether you are ashareholder or have a pension plan you can make yourvoice heard and make business more accountable. Readon to find out how.
The time for change?
Major change cannot be expected to occur overnight, buteven the Government thinks the time for a shake up hasarrived. Pensions Minister Stephen Timms said in 1999that "ordinary people want to know what is being donewith the money invested on their behalf.” Because of thisview, in July this year new regulations will come into
force requiring occupational pension fund trustees todeclare whether or not they take social, environmental andethical issues into account in their investment policies,and if they do, to say what their policies are.
Similarly, those who are thinking of buying personalfinancial products, should take note of a recent Which?guide. Which? Way to Invest and Save points out that"personal pensions, mortgage endowments, unit trusts,life insurance, critical illness protection and generalinsurance can all be set up through funds that pursueethical policies.” The popularity of ethical finance is seenin a recent huge increase in demand and the establishmentof a range of new funds. Indeed, even though most of themajor insurance companies do not operate effectiveenvironmental policies for most of their products, they donow offer ethical products, thus reflecting a huge recentshift in consumer views on what individuals want fromtheir finances. There is every reason to believe thatplacing your money in a scheme with an ethical policywill not lead to financial penalties. Indeed, given thedirection in which the values of society are changing,those companies who are doing well on environmental andethical issues now are likely to be the business winners inthe future.
Those who hold your money have clout andbecause of that, so do you...
• The occupational pension schemes for BritishCoal, British Telecom, the Electricity SupplyIndustry, the Universities SuperannuationScheme, the Post Office, BG, Railways,Lloyds, Barclays, BP Amoco all manage £10billion plus.
• The Prudential Assurance has over £1.2billion funds under management and CGU £1billion.
• Standard Life could buy British Airways,Tesco, Marks& Spencer, Boots and CadburySchweppes with the funds it has undermanagement.
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How can your money contribute to abetter world?
Whether you are investing in the stock market directlyyourself or others are doing so on your behalf throughyour pension or insurance, you can use your financialclout to influence the behaviour of companies for thebetter. You can do this through:
• positive engagement through writing letters toencourage best practice.
• not investing in companies who are the worstoffenders in terms of climate change or toxicpollution for example
• selling your stocks in companies who refuse toset targets for improvement or continue with badbehaviour, such as supporting industrycampaigns against environmental laws.
• As a shareholder you can attend Annual GeneralMeetings (AGMs), propose resolutions (if you
can get enough support from other shareholdersto do so) and vote on the appointment ofdirectors. All shareholders can attend AGMs,no matter how small their shareholding and socan ask questions and make their ethical andenvironmental views known - directly to thepeople who run the company.
• If your money is invested by others (throughyour pension fund for example), you can askthem to press companies to improve on yourbehalf.
• Proposals can be introduced to companies byrepresentatives of pension funds and insurancecompanies regarding particular projects thecompany is supporting, for example oilexploration in indigenous peoples' lands, or caninvolve discussions about the firm's policies, forexample on climate change and whether there isa long term strategy to reduce carbon dioxideemissions from factories. Should thesediscussions not lead to improvements, you canask that the sanction of selling the company'sshares is exercised. Most ethical funds set outmore or less clearly what their policy is and howit will be implemented through influence on thecompanies in whom they own shares. Many suchfunds routinely engage with the managers ofcompanies to discuss ethical issues.
But what is an ethical orenvironmentally sound company?
Although it is often clear what constitutes unethical orenvironmentally-damaging behaviour, it is often not soeasy to define the good or best practice companies thatshould be encouraged. Having said that, Friends of theEarth believes that it is possible to conceive investmentstrategies that move companies in the right directionthrough the considerable leverage exercised by financialinstitutions.
Such investment strategies should include criteria thatexamine the political activities of companies, theenvironmental and social impacts of their business andhow firms relate to society. These criteria would for
Your purchasing power is huge…
• Direct and indirect pension investmentsaccount for nearly half of the London stockmarket.
• Occupational pension schemes have financialassets of £640 billion.
• Personal pension plans have financial assetsof £190 billion.
Make the adverts mean something…
• CGU " Your money is in safe hands"• Axa Sun Life "worthy of your trust"• Norwich Union "no-one protects more"
If investments made on your behalf are in companiesdriving dangerous climate change, deforestation ortoxic pollution, then these and other slogans aboutsafety, protection and trust must surely be challenged.
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example highlight a company's involvement in industrycampaigns against environmental laws (Exxon forexample supports efforts to block the implementation ofthe Kyoto climate change protocol) and instead look forpositive sustainable development policies. For thosecompanies producing fossil fuels, toxic chemicals orforest products, the criteria would respectively seektargets for renewable power generation, elimination oftoxic wastes and sustainable forest management. As faras the firm's relationship with society is concerned,investment criteria would examine the basis of any publicopposition to the company's activities, assess the qualityof its environmental and social reporting and look at howit treated disclosure of information to parties affected byits operations.
Take Action on YourInvestments!
Occupational Pension Plans
If you are a member of an occupational pension scheme,write to your pension fund trustees now and tell them-
• You believe it is important to take social,environmental and ethical issues into account,remind them about the new regulations (seeabove).
• You want social, environmental and ethicalissues to be explicitly addressed in the Statementof Investment Policy.
• About the issues you care about most, forexample reducing pollution, preventingdangerous climate change, protecting therainforests, promoting human rights or phasingout the release of cancer-causing chemicals.
• That even if the funds are not actively managedand instead just track an index, there are ethicalindices they can track.
• You would like them to exercise influence onyour behalf to persuade the companies in which
they invest to improve their environmental andethical performance.
• That in some cases it might be appropriate towithdraw investments from those companiescausing the worst problems or those who refuseto improve.
• You would like regular disclosure of investmentdecisions (how much is invested in each companyby your fund managers). Point out that thisinformation can be conveniently reported via theinternet.
• Ask them if their current fund managersunderstand how environmental issues can impacton the financial performance of companies andhow they can demonstrate their understanding ofsuch impacts.
• Ask for assurances that the environmental andfinancial risks posed by climate change are beingminimised through investment decisions (thebigger and more frequent floods, storms andother extreme weather events that are expected toaccompany climate change will pose seriousrisks to financial assets, through larger insurancepayouts for example.)
You can find out how to contact your pension fundtrustees either from your annual pension report or byasking your employer.
Personal Pension Plans
If you own shares through personal pension plans, PEPs,ISAs, Unit Trusts, Investment Trusts, Open-endedInvestment Companies (OIECs), life insurance ormortgage endowments then contact your provider and askthem:
• Whether they have an ethical or environmentalpolicy covering your investments and if not,when will they have one.
• To sign up to the internationally recognisedUnited Nations Environment Programme's
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initiatives for either the banking or insurancesectors, which make a commitment to promotingenvironmental improvement.
• To provide information on shareholdings, pointour that this can be easily updated andcommunicated via their website.
Then tell them:
• What environmental and ethical issuesparticularly concern you
• That you would like them to exercise their poweras shareholders on your behalf to influence thecompanies in which they invest to improve theirenvironmental and ethical performance and as anultimate sanction, to withdraw investment.
Responsible Shareholding
If you directly hold shares or intend to buy shares:
• Decide on your own environmental shareholderstrategy, for example by avoiding thosecompanies that do not have a clear target-drivenethical and environmental policy or fail to clearlyreport on their progress towards achieving theirtargets.
• Contact voluntary organisations such as EthicalConsumer to see what information they canprovide about the ethical or environmentalperformance of companies you invest in or planto invest in.
• Use your shareholder influence to presscompanies to improve their ethical orenvironmental performance.
• If a company refuses to engage positively withenvironmental or ethical challenges, sell yourshares and let them know why.
Fiduciary responsibilityFinancial managers sometimes say that they cannot look
at ethical or environmental questions in their investmentdecisions because they have a legal responsibility to lookafter the financial interests of their customers. This istrue, but their legal (fiduciary) responsibilities in thisrespect should not limit their ability to invest ethically.
For a start, many ethical funds perform as well or betterthan non-ethical ones. Indeed, there is mounting evidencethat companies who best manage their environmentalresponsibilities are better managed companies moregenerally and as a result perform better in the long termfinancially. One recent study carried out on behalf ofseven international companies concluded thatsustainability strategies can boost the stock market valueof companies by up to 15 per cent. By investing in thesemore profitable companies, investment managers aremeeting their legal fiduciary responsibilities. It could beargued that they have a financial responsibility to avoidthose companies who do not meet such standards.
That the fiduciary responsibilities of fund managers canquite legally embrace ethical and environmental issueshas recently been confirmed in Government regulationswhich will in July require occupational pension fundmanagers to say what, if any, are their ethical andenvironmental policies.
In the final analysis, the strength of the economy relies onthe maintainance of a sound environment. Climate changethreatens insurance firms whilst toxic pollution not onlycosts lives but expensive healthcare too. Forests are hometo biodiversity which is the raw material for new drugsand industrial processes and therefore the wealth of futuregenerations. Liquidating such assets now for the sake ofa quick return does not make economic sense.
FOE’s Campaign forSustainable Business
Companies have a vital but unfulfilled role to play inresolving key ethical and environmental challenges.Although Friends of the Earth campaigns to persuadeindividual companies to improve their ethical andenvironmental performance, it is clear that real progresswill be made only when the signals that shape companybehaviour and policy change. To this end, Friends of theEarth is engaged in a wide range of campaigns to improve
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UK environmental laws (thus giving firms new legalbenchmarks), to make the case for ecological tax reforms(thereby providing new price signals that will encouragefirms to shift track) and working to strengtheninternational agreements (so that a level playing field ofhigher standards exists between countries).
The main source of influence over companies howeverrests with their large shareholders. To date, their mainpreoccupation has been to maximise the financial returnfrom their investments. Although it is recognised thatgood environmental performance in companies is often aproxy for good management more generally, and whilethere has been some attention to the rather narrow issueof the financial liabilities companies arising from theenvironmental impact of their business, it is generally thecase that the pension funds and insurance companies havenot been attentive to wider environmental issues in theirinvestment decisions.
It is only the relatively small ethical funds that have paidattention to matters of company impacts on theenvironment. If shareholders are to be influential inshaping company activities to accommodate wider issues,then much larger blocks of finance must be mobilised.This is why Friends of the Earth is seeking to convincethe large City institutions to adopt ethical andenvironmental criteria for all their investment decisions,not just those related to the management of ethical funds.Ethical funds play a vital role in shaping the debate oncorporate environmental performance. This role must beurgently expanded such that environmental and ethicalconcerns are reflected in all investment decisions. If thatwere to happen, then company ethics and behaviour reallywould begin to shift.
If you want to make the world a better place, and do itsitting down, then mobilise your money today.
General advice
When making a long-term financial decision it is best toseek some professional advice. Any authorisedIndependent Financial Adviser can give advice on ethicalinvestments, although you may wish to approach a firmthat specialises in this area. Do not alter your presentfinancial arrangements without first seeking professionalguidance.
Financial AdviceFor a list of Independent Financial Advisors who shouldbe able to help.
EIRIS (Ethical Investment Research & InformationService)
80-84 Bondway
LONDON
SW8 1SF
Tel: 020 7840 5700
Ethical Investment Association
Web: www.ethicalinvestment.org.uk/
For free guide to Ethical Investments.
Ethical Investment services
61a Friargate
Freepost NWW6682
PRESTON
PR1 3XS
0800 0188557
Web: www.ethicalservices.co.uk
Information on Companies
Ethical Consumer Research Association
Unit 21
41 Old Birley Street
MANCHESTER
M15 5RF
Tel: 0161 226 2929
Web: www.ethicalconsumer.org
E-mail: [email protected]
Produces Ethical Consumer Magazine and Corporate CriticOnline Database- an essential tool for checking the ethicaland environmental performance of companies.
Corporate Watch
16b Cherwell Street
OXFORD
OX4 1BG
Tel: 1865 791 391
Fax: 1865 243 562
Web: www.corporatewatch.org
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E-mail: [email protected]
Publishes DIY Guide on How to Research Companies.
Multinational Monitor
PO Box 19405
Washington
DC 20036
USA
Tel: +1 (202) 387-8030.
Web: www.essential.org/monitor/monitor.html
E-mail: [email protected]
The Multinational Monitor tracks corporate activity,especially in the Third World, focussing on the export ofhazardous substances, worker health and safety, labour unionissues and the environment.
Written by Tony Juniper.
Revised October 2000.
Friends of the Earth
26-28 Underwood Street
LONDON
N1 7JQ
Tel: 020 7490 1555
E-mail: [email protected]
Website: www.foe.co.uk
Printed on paper 100 per cent recycled from post-consumerwaste
