THE NPI Social Index has been launched as the first UK attempt to quantify the proposition that corporate responsibility is a driver of financial out-performance.
The index of 158 companies resembles the FTSE-100 in capitalisation and sectoral structure, but includes only those which are seen as leaders in their class: in their policies on the environment, the community, products, and
the workplace.
The selection by sector weightings in the FTSE-100 means there are plenty of banks and financial companies but fewer utilities. Royal Bank of Scotland, Bank of Scotland, General Accident and the Prudential are in. So is Diageo - but not Scottish & Newcastle. ScottishPower loses out to Anglian Water and Centrica. Sainsbury and Tesco are in; Safeway is edged out.
Other companies in the index include BT, Boots, Iceland, Johnson Mathey, Kingfisher and
Scotia Holdings.
NPI, which has one of the best-performing ethical investments in the market with its Global Care fund, has spent 18 months researching the index, and has back-tested it to 1990. The 150 companies and eight investment trusts have out-performed the FTSE-100 over that period by a significant margin. They comprise 37 FTSE-100 companies, 36 from the FTSE-250 and the remainder from the FTSE Small Cap index.
The index is aimed at institutional investors. Mike Shaw, executive director of NPI Asset management, says: ''We believe that this index will help to demonstrate that a socially responsible investment approach does not have to compromise fiduciary responsibilities.''
The index is now being calculated by FTSE Actuaries and will be published early next month. Any proposals to admit or remove companies will be vetted by an independent committee of experts set up by NPI.
The indicators are:
n Environment - a formal management system, investment in protection technologies, report-ing, pollution record, product stewardship, and encouraging green suppliers.
n Workplace - family-friendly benefits such as child care and flexi-time, board level commitment to equal opportunities, profit-sharing, training and education.
n Community - commitment to openness with local communities, progressive community policies, support for local education, housing and other social enterprises, charitable giving and social
exclusion projects.
n Product - degree to which the product range offers social and environmental benefits, is responsibly marketed, and has built-in quality assurance.
Head of research Anne-Maree O'Connor says Sainsbury is the clear leader in its sector on the basis of its environmental policies, and is more proactive in its
family and equal opportunities policies than Tesco.
Iceland's virtues include that it is a High Street, not an out-of-town, retailer, and its stand against genetic engineering in food products. Scotia Holdings is included for its natural product base and its local community activism.
Diageo and Glaxo Wellcome are seen as particularly strong in community policy, as is BT.
Prudential escapes censure for its high-profile pension mis-selling. ''It is one of the largest companies and one of those that have done most in recent years to clean things up,'' says O'Connor.
Abbey National wins the index vote against NatWest for its workplace ethic, which is also seen as a strength for General Accident, Bank of Scotland and Royal Bank of Scotland. The Royal also scores well on the environment.
The Social Index is still underweight in engineers. It has Johnson Mathey, seen as relatively green, even though its union relations are weak. O'Connor says: ''It is an example of how large companies are not good at everything.''
Researcher Toby Belson explains: ''We realise that it is not black and white; there is no list of 100 ethical stocks that are as green or as clean as they should be. What we are trying to do is pick companies with more pros than cons.''
Meanwhile Eiris, the Ethical Investment Research Service, has been testing a new set of ethical benchmarks by asking Marks & Spencer how it performs against them. Eiris says the experiment has provided valuable lessons, though some interesting questions were not answered by M&S - including how it monitors the use of child labour.
Granada Television recently paid M&S #50,000 in libel damages over child labour allegations.
Eiris says: ''Nobody is saying that M&S doesn't care about child labour, but it wasn't willing to give us details of its monitor-
ing system.''
M&S says: ''Just because we don't have a written code of conduct, doesn't mean we don't have stringent standards which we are confident our suppliers stick to.''
Why are you making commenting on The Herald only available to subscribers?
It should have been a safe space for informed debate, somewhere for readers to discuss issues around the biggest stories of the day, but all too often the below the line comments on most websites have become bogged down by off-topic discussions and abuse.
heraldscotland.com is tackling this problem by allowing only subscribers to comment.
We are doing this to improve the experience for our loyal readers and we believe it will reduce the ability of trolls and troublemakers, who occasionally find their way onto our site, to abuse our journalists and readers. We also hope it will help the comments section fulfil its promise as a part of Scotland's conversation with itself.
We are lucky at The Herald. We are read by an informed, educated readership who can add their knowledge and insights to our stories.
That is invaluable.
We are making the subscriber-only change to support our valued readers, who tell us they don't want the site cluttered up with irrelevant comments, untruths and abuse.
In the past, the journalist’s job was to collect and distribute information to the audience. Technology means that readers can shape a discussion. We look forward to hearing from you on heraldscotland.com
Comments & Moderation
Readers’ comments: You are personally liable for the content of any comments you upload to this website, so please act responsibly. We do not pre-moderate or monitor readers’ comments appearing on our websites, but we do post-moderate in response to complaints we receive or otherwise when a potential problem comes to our attention. You can make a complaint by using the ‘report this post’ link . We may then apply our discretion under the user terms to amend or delete comments.
Post moderation is undertaken full-time 9am-6pm on weekdays, and on a part-time basis outwith those hours.
Read the rules hereComments are closed on this article