From Burma to Africa to London, socially responsible investment is flexing its muscles and getting results

Terry Slavin
The Observer - Sunday September 1, 2002

When Aung San Suu Kyi walked free from house arrest in Burma earlier this year, there was low-key rejoicing in the offices of some of the UK's most prominent investment funds. Pressure brought by a group of funds on the western companies that still operate in Burma may have played a part in the military junta's decision to release her.

Remarkably, the campaign was not restricted to ethical investment funds. Cooperative Insurance Society (CIS), Friends Ivory & Sime, Henderson Global Investors, Jupiter, Morley Fund Management, the Universities Superannuation Scheme, Swiss fund Ethos and PGGM had put the muscle of all their £400 billion funds under management into the campaign, launched last December. It called on companies to 'justify their involvement' in Burma but stopped short of demanding they quit the country, and received a high level of publicity in Asia.

While the funds are not actively looking to replicate their concerted approach elsewhere, Burma marked a coming of age for the socially responsible investment (SRI) movement. It marked a shift from niche, where funds tend to screen out miscreants, to mainstream, where funds venture everywhere but use constructive engagement to improve corporate behaviour.

Some funds, such as CIS, Henderson Global Investors and Friends Ivory & Sime, use constructive engagement across all their holdings, and regularly raise the alarm over executive pay and corporate governance, which have moved up the SRI agenda amid the recent corporate crises in the US.

The funds have chalked up numerous successes. When GlaxoSmithKline agreed to lower its prices for Aids treatment in Africa it was largely in response to a campaign by the same SRI funds as were involved in the Burma campaign. Shareholders also forced the removal of chief executive Greg Hutchings at Tomkins, a review of directors' bonuses at Vodafone, and Stelios Haji-Ioannou's decision to step down as chairman at EasyJet next year.

In Burma, the most concrete sign of progress was the response to a shareholder resolution in May calling on Unocal, the US joint-venture partner of the Burmese government in the $1.2bn Yadana gas pipeline project, on which the International Labour Organisation says forced labour has been used, to abide by ILO principles. The resolution, backed by 31 per cent of shareholders, garnered the greatest support of any shareholder resolution ever on labour issues, says Jo Allen, SRI analyst at CIS.

The funds in the Burma campaign have also been meeting companies there, including Britain's Premier Oil, requesting social impact audits, transparency about their operations, and an assessment of whether their business is at risk if there is regime change.

There is a 'unique window of opportunity' to press for democracy in Burma, contends Kirsty Thomas of Friends Ivory & Sime. 'The companies that are operating there have leverage in trying to capitalise on the current situation. Premier Oil states clearly in its social report that it believes it has a role to play to ensure this transition to democracy.'

But John Jackson of the UK-based Burma Campaign, which has put pressure on companies such as Pepsi, Heineken, Ericsson and Triumph to quit Burma, disagrees: 'There is no such thing as good practice if you are working there. You are providing revenue to a regime that is impoverishing 50 million people and working against democracy. If investors are engaging with these companies, the answers they should be getting from their questions should lead them to decide to pull out.'

The engagement/non-engagement question is less clear-cut in countries where the regime is not as much a pariah as Burma, or when the companies operating there are more sensitive. At BP's AGM in May, a shareholder resolution put forward by the Worldwide Fund for Nature (WWF) calling for greater transparency in reporting risk in controversial exploration projects, received only 11 per cent support.

Tony Belsom, SRI analyst at Morley, says one reason the SRI community did not rally behind the resolution was BP's status as the good guy among oil firms, and the fact that it has been working closely with SRI funds in areas such as the potentially politically explosive gas project at Tangguh in West Papua.

While acknowledging engagement as a 'very positive development', Jules Peck, sustainable investment officer for WWF, says it is hard to know how it works in practice because of a lack of transparency and standards in the industry. There are many places where Tangguh-type work has not been done.

The New Economics Foundation (NEF) this year released a report, An Ethical Door Policy - How to avoid the erosion of ethics in socially responsible investment , which welcomed the expansion of SRI, but denounced the 'moral drift' that has set in as investment companies jump on the bandwagon. The report laments the absence of a universal reporting standard. Most funds rely heavily on the use of questionnaires, for which there are no clear guidelines, and on determining whether companies have systems in place to cope with ethical issues. 'Ironically, those companies which have avidly adopted the CSR [corporate social responsibility] agenda are often among the most unethical companies,' it pointed out.

A scan of the new FTSE4Good index and the Dow Jones Sustainability Index, which count GlaxoSmithKline, AstraZeneca, Shell and BP as members, underlines the point. How long before BAT, which in July published the tobacco industry's first social report, takes on the 'ethical' mantle?

Dubbing the new engagement-oriented funds 'ethics lite', Ed Mayo, one of the authors of the NEF report, points out that ethical investment first grew out of the conviction that companies should not invest in apartheid South Africa - a world away from the current campaign in Burma.

'There's a place for "ethics lite", but let's know it's ethics lite,' he argues. 'If everything is marketed as ethical investment - even if it's got an engagement overlay of one meeting a year with analysts - it will undermine the ethical providers that have real social impact.'