THE LIFEWORTH REVIEW OF 2008

Rainbows in the storm

As money was such a dominant issue in the third quarter of the year, let us round up some of the news in the socially responsible investing (SRI) field that caught our eye. Because, even though the financial crisis has overshadowed all other stories for all types of investors, there was no let-up in campaigns and news stories targeted at influencing socially responsible investors, particularly in relation to investments in countries with poor human rights records.

Action on Zimbabwe was one such rainbow amid the financial storms. In June 2008, international concern about rigged elections and political violence led to renewed calls for companies to review their investments in the hyper-inflation-ravaged country. Standard Chartered, the UK-listed international bank, came under the spotlight following reports that the Foreign Office was investigating one case of a possible breach of EU sanctions.

The influential newsletter Africa Confidential alleged that Standard Chartered, together with Barclays and the insurance firm Old Mutual, was one of three British-based groups thought to have provided an estimated $1 billion (£500 million) in direct and indirect funding to Robert Mugabe’s administration. The Independent on Sunday quoted internal Foreign Office emails expressing concern about the bank’s activities, with one message stating ‘I’d say Standard Chartered is my prime concern. I’ve not asked them whether they’ve made any of these loan payments, but there’s a good chance that they may have been forced to do so by the Reserve Bank of Zimbabwe. Officials said that, if a sanctions-busting case is proven, ‘we will take appropriate action. We are determined to see that EU sanctions are properly enforced.’56

In July 2008, The Observer reported that Shell was considering pulling out of Zimbabwe ‘amid claims that President Robert Mugabe was reserving the distribution of fuel at petrol pumps for party supporters’.57 A study by London-based Ethical Investment Research Services quoted by the paper showed that Britain is the largest foreign investor in Zimbabwe with holdings in more than a quarter of the 82 companies that have their parents listed on overseas stock exchanges.

In response to public concerns, UK Prime Minister Gordon Brown asked companies doing business in Zimbabwe to ‘reconsider’ their position. The Foreign Office said this meant that they should look at board members and shareholders of their subsidiaries to see if regime members were directly benefiting.

While—in common with other long-standing investors in the country such as Unilever, British American Tobacco and the mining corporations Anglo American and Rio Tinto—Standard Chartered Bank pledged to stay in Zimbabwe, some non-resource companies with smaller commitments did respond, with Tesco announcing that it would ‘stop sourcing products from Zimbabwe as long as the political crisis persisted’; and the Mayor of London promised that London Transport’s ‘Oyster Card’ supplier EDS would not renew its contract with the Munich-based company Giesecke & Devrient, because the latter provided banknotes to Zimbabwe’s central bank. The communications company WPP meanwhile sold its 25% stake in Imago Young & Rubicam which had been advising the regime ‘for just $1 to the majority shareholder, Sharon Mugabe, who is also chief executive’.58

July 2008 also saw renewed focus on Western investments in Burma (Myanmar) with the publication of a new report by Burma Campaign UK, ‘Insuring Repression’, accusing foreign insurance companies of working closely with the regime’s insurance company to ensure that foreign businesses can operate in Burma.59 Sixteen companies were highlighted as their members or subsidiaries sell insurance to companies in Burma, including Lloyds of London, Hannover Re, Catlin, Atrium, XL, Tokio Marine, Sompo Japan and Mitsui Sumitomo. Johnny Chatterton, author of the report and Campaigns Officer at Burma Campaign UK, said, ‘By selling insurance to companies operating in Burma these companies are propping up a regime that rules through fear—raping, torturing and killing Burma’s civilians. These companies are putting profit before ethics, they are helping to finance a regime that less than a year ago was shooting peaceful protesters on the streets of Rangoon.’ The Campaign criticised the EU for failing to follow the US in imposing targeted financial sanctions that would prevent insurance companies from selling insurance to companies in Burma and praised a number of companies that have taken the decision not to provide insurance to companies there, including AIG, Allianz, AON, AVIVA, AXA, ING, Munich Re, SCOR, Swiss Re and Willis.

In July 2008, there was interesting news for those following the increasing public interest in and scrutiny of SRI funds when Pax World Management Corp. agreed to pay a $500,000 fine to the US Securities and Exchange Commission (SEC) because it had failed to follow its own socially responsible investing criteria over a five-year period, when two of its mutual funds invested in off-limits industries such as gambling and liquor, and oil and gas exploration. David Bergers, head of the SEC’s Boston office, said it apparently was the first case the agency has brought alleging violations by a mutual fund firm that purports to use social as well as financial screening criteria in making investments.60 After the failures at Pax, the socially responsible investment industry estimated by the US Social Investment Forum to hold more than $2.7 trillion in investor assets in 2007 could come under closer scrutiny.

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(The references are available in the pdf download and hard copy versions of this annual review, available from Lifeworth’s bookstore.)

This section can be referenced as:

Bendell, J., and N. Alam, S. Lin, C. Ng, L. Rimando, C. Veuthey, B. Wettstein (2009) The Eastern Turn in Responsible Enterprise: A Yearly Review of Corporate Responsibility from Lifeworth, Lifeworth: Manila, Philippines. (Page numbers for this section are available in the pdf download and hardcopy.)

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