Corporate Social Responsibility & The ABI

Co-written by Adam Fenner

The Association of British Insurers, (the "ABI"), has published a new report on the relevance of corporate social responsibility ("CSR") and issued an accompanying set of investment guidelines. The following constitutes an examination of the concept of CSR, its current prominence in the corporate realm, and the possible impact of the ABI's recommendations.

Corporate Social Responsibilty - An Introduction:

The notion of CSR is one that is increasingly in the ascendancy. In essence, it is concerned with a company's awareness and handling of social, ethical and environmental matters ("SEE matters"). These matters harbour potential risks, detrimental to a company's performance, and it is the minimisation of a company's exposure to those risks, that is at the crux of CSR.

SEE matters encompass a wide range of issues such as human rights, employee rights, community involvement and environmental protection. The individuals and groups whose interests lie at the heart of those issues are referred to as stakeholders, and maintaining their confidence is paramount to the successful integration of a CSR programme. The ABI's report, Investing in Social Responsibility - Risks and Opportunities, suggests that there are two distinct advantages borne from the adoption of CSR policies.

The first is that shareholders need to be satisfied that a company is actively managing the serious risks posed to it by various SEE matters. Serious financial penalties can be incurred and thus shareholder value diminished, by failure to address issues such as inadequate working conditions or pollution of the surrounding environment. Those failing to implement effective risk management strategies risk diminishing their appeal to potential investors. The ABI's report is ominous in this respect, stating:

Ultimately, companies which do not engage in this process will incur a higher cost of capital.

The report's second argument for CSR centres on the competitive advantage that it might afford a company, though by the ABI's own admission such an advantage has yet to be established conclusively. The report acknowledges that the nature of the issues involved make it hard to demonstrate causal connections, but does point to the existence of "a growing body of evidence" to support their argument. They cite by way of example, greater stakeholder loyalty, lower operating costs, higher productivity and quality and reduced share price volatility as potential...