UK organizations researching
companies’ ethical performance are developing new products and services
in the expectation that the pension disclosure regulation will increase
demand for their services from financial institutions
Gauging
the real level of interest among investing institutions in the ethical,
social and environmental performance of companies is tricky – partly
because many of the largest institutions remain unclear about the
importance of these issues when they are considering whether to invest
in a company.
However, institutional investors make use of
specialist research services offered by external providers. The
activity of these niche providers can be a useful indicator of where
the ethical investment market might be heading.
There are
between 40 and 50 fulltime ethical investment researchers working in
the UK, according to Mark Mansley, head of the London-based Claros
Consulting and author of a forthcoming report on ethical investment
strategies for institutional pension funds. ‘On that rough estimate,
the current market must be worth in the order of £3 million’, he says,
including dedicated inhouse researchers in financial institutions,
which also buy in data from the niche providers.
Demand for
the services of UK corporate responsibility research organizations has
grown rapidly, boosted partly by the growth in value of ethical funds
under management (from £0.9 billion to £2.2 billion in the four years
to September 1999), and partly by the expectation of growth arising
from the pension disclosure regulation.
All the research
providers have launched, or will shortly launch products and services
aimed at pension fund managers, trustees and their advisers, although
their success, as Mansley points out, depends on how the trustees
actually respond to the regulation, which is ‘a bit of an unknown’. One
of the longer established ethical funds is rumoured to be closing next
year due to indifferent performance, but the provider is said to be
working on a new ethical investment vehicle for the pension fund
market.
In April, Pensions and Investment Research
Consultants (PIRC) launched its corporate responsibility briefing
service aimed at institutional investors. From early next year, it will
begin offering investors company profiles, starting with the larger UK
listed companies. ‘It’s aimed not at portfolio screening, but at
institutions already investing in companies and wishing to engage with
them,’ said Stuart Bell, PIRC’s research director.
The
company profiles will cover five main stakeholder issues: employee
relations, environment, community, human rights and corporate
governance. PIRC has built its reputation as an independent corporate
governance consultancy, so this represents a significant shift of
emphasis for the organization.
‘We’re confident that the
market for both advisory and research services is going to grow. It was
growing before the new regulation on SIPs [Statement of Investment
Principles] and that can only give it a boost’, said Bell.
The Ethical Investment Research Service (EIRIS), whose commercial arm
turned over £750,000 last year, is spending ‘a six figure sum’ on new
software it says will make it much easier for fund managers to research
the ethical performance of companies. Ethical Portfolio Manager, due
for launch this year, will allow fund managers to download information
on the non-financial performance of companies onto their desktops.
‘The new software analyses companies across a wide range of criteria’,
said EIRIS head of client services Karen Eldridge. ‘For example, it
will say whether companies have a weak, moderate or good performance on
the environment.’ EIRIS, which has 10 researchers and was set up in
1983, recently launched its pension fund manager briefing service for
pension fund advisers.
Ethical and Environmental Screening
Services is a new entrant to the market, but the Cheltenham-based
screening company set up in October 1998, already has a number of well
known City institutions as clients, according to director Lee Coates.
‘Most of our business at present is coming from the private client
side’, said Coates, ‘but the SIPs regulation will drive this market
forward’.
Delphi International has six researchers working
for three principal funds run by two Swiss fund managers, VTZ and
Pictet. Delphi is now looking at opportunities in the UK pension fund
market. ‘The UK is miles ahead of Europe on this – they don’t have
anything like the pension fund regulation,’ said Sibylle Hyde, Delphi’s
head of equity research. ‘We are developing a database looking at the
top 300 European companies as an initial product to offer to UK pension
funds’. The database is likely to be in use early next year.
Mansley comments, ‘In terms of the new SIPs regulation, future growth
in the market will depend on a number of factors – how the fund
sponsors react, how funds react and how unions react. If there is a
general consensus, things will move on. The government is fairly keen
to see it succeed.‘
