Ethical activists step up the fight

Thousands of South Africans are seeking compensation for asbestosis

By BBC News Online's Orla Ryan

Your average shareholder should, if he or she is lucky, enjoy a healthy dividend, a few glossy reports in the post and a nice lunch every now and then at the company's expense.

Shareholders attending CGNU annual general meeting on Tuesday were greeted with photographs of South African asbestos victims and faced calls to use their influence as a shareholder to pressure it to pay compensation.

Some shareholders were likely to have been embarassed by their own ignorance, unaware that a CGNU subsidiary owned a 2% stake in the former asbestos mining group Cape.

Others may find that ignoring social and environmental concerns is no longer just a case of social embarrassment - these issues run a real risk of hurting a company's profits.

Asbestos

British-based building materials and insulation company Cape mined asbestos in apartheid South Africa.

Over 5,000 South African claimants who now suffer from asbestos-related diseases are seeking compensation through the English courts.

Last year they won the right to have their case heard in England.

Cape mined in South Africa during the Apartheid era

But the legal process is slow and while they await a judgement, asbestos victims are dying.

"I want to appeal to Cape's shareholders to get Cape to settle these claims. If only they could see the suffering in our communitities, I am sure it would convince them of the urgency of our plea," Crosby Moni, president of the South African National Union of Mineworkers said.

Other asbestos workers in the UK and the US have won multi-million pound settlements against asbestos mining companies.

At Tuesday's meeting CGNU chairman Pehr Gyllenhammar said: "As shareholders in Cape, Morley [the subsidiary which owns the 2% stake] has discussed the current situation on several occasions with the management of Cape, most recently in January this year."

Crucially, the reason activists have targeted CGNU is that, unlike Cape or its other shareholders, they are trying to sell products to consumers. They rely on consumer goodwill and popular perception, which could be hurt if CGNU is linked to the asbestos case.

Shareholder activism

Shareholders are increasingly finding that their investment decisions could leave them open for attack - in some cases quite literally - from activists.

Huntingdon Life Sciences's brush with bankruptcy woke companies up to the real dangers of ignoring ethical considerations.

Investors, concerned about their profits and image, went looking for safer bets than the research company.

As investors, we want to protect companies from something having that effect on their share value

Julia Dreblow, Friends Provident

Glaxo SmithKline - one of the world's largest drug companies - has faced criticism for its court case in South Africa over the sale of cheap copies of its drugs.

As a shareholder in Glaxo SmithKline, Friends Provident was one of the first to meet with the company and express its concern about what the company was doing.

"As shareholders and investors in GSK, we are concerned about the reputation of GSK," Friends Provident's Julia Dreblow said. "It could have a potentially detrimental effect on their share value if they carry on as being seen as being nasty."

"If people in the public are concerned about [an issue], and a company is massively dependent on people buying from them, that could presumably have a knock on effect on thier business. As investors, we want to protect companies from something having that effect on their share value," she said.

ACTSA director Ben Jackson believes companies will face more pressure, partly because they have got more power and hence more responsiblity.

"Companies have only got to expect that they find themselves in the firing line...they want deregulation, they must more often accept the corporate responsibility that goes with that," he said.

Hurting the bottom line?

If you were to put a date on when ethical issues started to enter mainstream shareholder thinking, it would be the summer of 1999, says Friends Provident's Julia Dreblow.

A new law obliged pension funds to disclose in their annual reports whether they took environmental, social and ethical considerations into account.

The Turnbull report on corporate governance at the end of last year introduced guidelines for risk management that extended to environmental risk.

Political pressure has also increased.

"I would like to see more reporting on environmental and social issues. The pioneers of environmental reporting - companies like BA, BT, British Gas and BP - are seeing increasing benefits from both improved efficiencies and public image as a result," Prime Minister Tony Blair said last year.

Ethical growth

Ironically, it was Morley Fund Management - the CGNU subsidiary which owns the stake in Cape - which earlier this month gained plaudits from activists when it said it would be tougher on companies it invested in.

It called for an annual environmental report from all FTSE 100 companies.

At present, only 37 of the top 100 companies do this and Morley's move may prompt other fund managers to make similar demands.

Consumer power is ultimately behind this move to take ethical considerations into account and has also powered the growth in ethical funds.

Friends Provident set up the first ethical fund in 1984.

Now there are 55 ethical funds in the UK managing £3.7bn - but this is still only between 1% and 2% of the total funds under management in the UK.