'Green' Companies Sell Themselves Short In The City

Listed companies that are leading the way with their environmental and social policies are selling themselves and their shareholders short by failing to make the case to the City, according to research published today (Thursday, May 24) by Business in the Environment (BiE). When asked to name spontaneously the most important factors to take into account when judging companies, 13% of companies' own investor relations managers (IRMs) deemed environmental and social issues important - but only 3% of analysts, 4% of institutional investors and 3% of financial journalists.

Despite these figures, the report, 'Investing in the Future' suggests there has been a move in the right direction in terms of sell-side analysts' focus on environmental and social issues since earlier research by BiE. In 1994, when asked directly about the importance of environmental factors, only 20% of analysts said it was 'quite or very important' in their evaluation of companies. Today, that has risen to 33%. The figures for social issues have increased by an even wider margin, from 12% to 34%. However, the views of analysts are still clearly behind those of the other groups in the City.

The report pin-points the emerging gap between the thinking of analysts on these issues and that of their institutional investor clients and other City audiences, and asks whether 'this lack of interest could seriously affect their ability to offer third-party analysis'. When asked to consider specifically non-financial indicators, 20% of investors, 23% of journalists and 30% of IRMs identified environmental and social factors as important, but just 9% of analysts.

Derek Higgs, Chairman of BiE comments: "The low priority given to these issues in the City contrasts with the increased priority within listed companies - evidenced by the growth of participation in BiE's Index of Corporate Environmental Engagement from 76 in 1996 to 184 in the this year's Index."

There is, however, scope for companies which do give high priority to environmental and social responsibility to win greater recognition in the City. Most respondents agreed that an emphasis on environmental and social performance indicates active management of corporate reputation and forward-looking management. In particular, the integration of environmental, social and financial strategies is highly rated in assessing companies. Those recognised as impressive performers on environmental and social issues are most commonly noted for their commitment, openness of information, keeping their word and clarity of reporting. BiE recommends that they should:

• Improve the quality of information provided, through better internal liaison and reporting mechanisms,
• Integrate the financial outcome of environmental and social policies with other financial data, and overall management issues
• Support the development of environmental and social performance indicators specific to the company's sector
• Gain third-party endorsement of the information provided.

The research indicated that the financial implications of government action and public pressure are thought most likely to raise social and environmental issues higher up the corporate and City agenda. This was borne out by responses to questions on the Pensions Act regulation on pension funds' investment policies, which showed that 44% of investors and 35% of analysts have changed their approach to companies following the introduction of the new legislation.

The research covered over 200 analysts, investors, investor relations managers and City and business journalists, in industry groups ranging from those where environmental and social issues are well understood to others were they are still emerging. The research was undertaken by MORI in February and March. It was supported by The Association of Chartered Certified Accountants (ACCA), CGNU and the Environment Agency.

Derek Higgs comments: "Investment is first and foremost for financial gain, but investment decisions and policies play a major part in creating our future. This survey shows that appreciation of corporate environmental and social responsibility has grown in the City, and that the integration of economic, social and environmental strategies is valued."

"BiE's parent organisation, Business in the Community, is helping to carry this change forward by looking at the expansion of the BiE Index to include social issues and is working on performance indicators for these. ACCA and the Environment Agency also have a number of projects designed to provide the framework within which companies and the City can learn to speak the same language on these issues."

"Of course the City should take more of the initiative in developing its own methods of assessing companies in these areas. But companies that have proved to themselves that environmental and social responsibility makes good business sense must now show this clearly in their reporting in a way that makes sense to the City."

Technical details

1. MORI conducted telephone interviews between 19 February and 6 March 2001. In total, 93 Sell Side Analysts, 50 Institutional Investors, 30 Business and Financial Journalists and 30 Investor Relations Managers from FTSE 250 companies took part.
2. Analysts and IRMs were classified by broad sector as follows and quotas were imposed to ensure the sample was spread across these different types of industry.
   • Construction & Extraction
   • Manufacturing & General Retailing
   • Technology, Media & Telecommunications (TMT)
   • Finance & Property
   • Transport
   • Utilities.
3. Comparisons with the 1994 BiE Survey should be regarded as indicative rather than conclusive.
4. Business in the Environment is the business-led campaign for corporate environmental responsibility, set up in 1989. Its aim is to inspire companies towards environmentally sustainable development. Further information about Business in the Environment is available on the web site, www.business-in-environment.org.uk
5. BiE's annual Index of Corporate Environmental Engagement benchmarks companies against their peers and industries against each other, on the basis of their strategic environmental management and measurement of performance in key areas of impact: energy, transport, global warming, waste and water consumption.
6. The BiE Index is increasingly recognised as the leading benchmark of corporate environmental engagement, partly on the basis of the high level of participation. Information on participation (or not) in the BiE Index is now incorporated in the National Association of Pension Funds Voting Issues Service, and the UK Government has since 1996 used the BiE Index to track progress in corporate environmental reporting.
7. The 5th BiE Index was published on February 21, 2001. This year, 184 companies took part, including 78 of the FTSE 100. The combined market capitalisation of the 152 FTSE 350 participants was 1631,360 billion, 78% of the total FTSE 350 value. The Index covers eleven Economic Groups and 39 Industry Sectors, following the FTSE Actuaries Industry Classification System. For the first time, members of Business in the Community which are not FTSE 350 listed were also invited to take part, including leading accountants, lawyers and management consultants. Dow Jones Sustainability Group Index Industry Group Leaders were included, to provide a global benchmark. Copies of the Report (including a pdf option for journalists) are available from Penny O'Farrell, Tel 020-7566 8703 or at [email protected].
8. Business in the Environment is a Business in the Community campaign. Business in the Community is a unique movement of companies across the UK committed to continually improving their positive impact on society, with a core membership of 700 companies, including 70 of the FTSE 100.