Mary Francis, Director General of the ABI (Association of British Insurers), discussed the significant leap up the boardroom agenda of socially responsible investment since the trade association introduced its guidelines on the issue two years ago.  She reported that 80 per cent of FTSE 100 companies give moderate to full compliance disclosure.  Mary Francis was keynote speaker at a seminar at the London Guildhall, organised by the Corporation of London and ISIS Asset Management on Tuesday 27 January.

As head of the trade association for the UK’s insurance industry, whose members invest billions of pounds in companies and stock market on behalf of savers and policyholders, Mary Francis said there is growing awareness among large companies of the importance of managing corporate responsibility risks. The evidence suggests that companies that do this well are more competitive and provide a better return for shareholders.

But there is still a need for better understanding of the link between management of corporate responsibility and the performance of the bottom line. The ABI expects to focus on this debate in the course of 2004.  Francis also stressed the importance of approaches that recognise the value to business of responsible behaviour.  Said Francis “We won’t get anywhere if we approach it with a bossy-boots mindset that is determined to tell companies to behave in ways we personally have decided is good for them.”

Mary Francis’ speech came ahead of an ABI sponsored event on 4 February aimed at the analyst community where business leaders will discuss the issues surrounding corporate responsibility and the bottom line.

Notes

Key Excerpts from the Speech

Interdependence of companies and society
“There is now much greater recognition of the impact they have on society. People are realising that companies wield great influence, not just over the environment but more broadly over the way we live our lives. They also generate the wealth that many of us depend on for our pensions.

Conversely, they are also dependent on society not just as an outlet for their products, but also for the skills they need to develop their business. In short there is a real awareness of interdependence. Companies cannot thrive if they are at odds with the society from which they generate their living”.

Striking the right balance
“We won’t get anywhere if we approach it with a bossy-boots mindset that is determined to tell companies to behave in ways that we personally have decided is good for them. We are not qualified to set absolute standards, for emissions for example, or to define how many cigarettes it is ethical for supermarkets to sell. Companies won’t respond to that sort of prescription and we would be failing in our fiduciary duty to generate value for our customers if we tried such an approach. But if we can convince companies that proper management of responsibility issues is in their interest, that of their workforce and that of their customers, then they will have good grounds for responding. Moreover that response will be a quality one, not one that reflects a perfunctory need to comply with arbitrary rules that seem to make no sense.”

The dangers with legislation
“I want to make it clear that we have nothing against sensible legislation that serves a real social purpose, but the danger with legislation on corporate responsibility is twofold. First it takes away the right of companies to differentiate themselves by competing to be more responsible. Indeed the very nature of the word responsibility suggests that there needs to be an element of free-will. Otherwise we would be talking about corporate compliance.”

The role of the Operating and Financial Review
“What we need to do is to encourage companies to recognise that there is a competitive advantage in the way they respond to the various risks and opportunities and to address those issues on which they have the greatest impact, because these will also be the issues which have the greatest impact on them. The forthcoming legislation on the Operating and Financial Review should help in this respect providing it is not too prescriptive because it will oblige companies to think carefully what the material issues are and to demonstrate that they are being dealt with. Indeed it would follow the principles established in our guidelines. What would be unhelpful would be prescriptive legislation setting out whole areas in which companies would be expected to report even if they had little or no relevance to the business”.

Everybody can be a winner
“I firmly believe that if investors can show that they have a coherent approach to these issues and are following through with initiatives that produce results, then they will be more easily able to deflect pressure for unhelpful legislation. That is the defensive argument for investors taking corporate responsibility seriously. The positive reason, as I indicated earlier, is that a sensible approach to risk management can make a difference to returns earned by long-term investors. This is not a situation where one side wins and the other loses. With the right approach everybody can turn out to be a winner.”

Note for Editors

1. Enquiries to: 
Lucy Butler  020 7216 7411 (Mobile: 07712 841184)
Alan Leaman  020 7216 7440 (Mobile: 07957 482330)
Malcolm Tarling  020 7216 7410 (Mobile: 07776 147667)
 Emma Quantrill  020 7216 7392 (Mobile: 07712 841183)

2. The ABI is the trade association for Britain’s insurance industry. Its more than 400 member companies provide over 97% of the insurance business in the UK. It represents insurance companies to the Government, and to the regulatory and other agencies, and is an influential voice on public policy and financial services issues. ABI member companies hold more than a fifth of all investments traded on the London Stock Exchange, on behalf of millions of pensioners and savers.

3. The seminar on Socially Responsible Investment is organised by the Corporation of London and ISIS Asset Management.  It will take place at the London Guildhall on Tuesday 27 January

4. An ISDN line is available for broadcasts. 

Copies of all ABI news releases, together with other information from the Association, can be seen on our website http://www.abi.org.uk

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