EIRIS: Peter Webster looks back at 25 years of responsible research

UK research company celebrates 25th year of corporate and SRI scrutiny.

by Hugh Wheelan | May 1st, 2008

Twenty-five years is an interesting timeframe to look back over the development of socially responsible investment. Peter Webster, chief executive of London-based Ethical Investment Research Services, known familiarly as Eiris, which celebrates its 25th birthday this month, is ideally positioned to do just that. Webster has lead the organisation since it started in 1983 as a charity foundation set up by a group of churches and charities to research their ethical investment concerns. Back then Webster and one colleague began examining 500 companies. The lesson of recent history is that some things change radically while others stay the same. In 1983, US President Ronald Reagan announced the planned ‘Star Wars’ missile interception programme and the lowest temperature on earth was recorded in Vostok Station, Antarctica. In the UK car seatbelts became mandatory while in the US Microsoft launched a little known computer programme called Word. Webster laughs: “Nowadays there are university courses in corporate social responsibility.” Casting his mind back, he says South Africa and apartheid was one of the major concerns of socially conscious investors; notably the role of Barclays, the UK bank, in the country: “Barclays came
under a lot of fire, but they, of course, weren’t only company with big interests in South Africa. Part of what drew me to the work with Eiris is that it didn’t pretend it could solve issues like apartheid, but wanted to provide a practical information service to investors and let them decide what to do. Our work was to look at who was supporting the apartheid regime by supplying computers or security. They’re the same issues you have today with the Burmese regime.”
When its founding members decided Eiris’ work could be valuable to the general asset management market they created a separate independent research company. Eiris retains its non-profit ethos, however, and still uses its income to support projects that promote socially responsible investment via the Eiris Foundation.
Webster says: “We began our research by looking very heavily at non-company sources such as NGO reports, UK government requirements and EU codes of conduct. This was essential then because companies didn’t actually provide much information. There were no environmental reports, or perhaps just a few trial-runs, along with attempts by some companies at social auditing.”
He notes that many corporations were suspicious about Eiris’ intentions: “Some were more open, of course, and others told us straight that we would be better not to be invested if we had particular concerns. We’ve always held to the idea though that you want to invest in good companies and not just avoid bad ones.” Memorably, one company, Next, the UK clothing retailer, took Eiris to court: “Next decided they didn’t like the fact we had identified that they and their subsidiary Gratton had more advertising standards complaints upheld against them than any other company in the UK. They decided that we ought to be stopped. I came back from holiday to find a writ on my desk. However, we did establish the right to publish our findings.”
Webster says the companies that have been most hostile to Eiris’ research have often been those where there was some corporate problem in the offing: “We’ve had a couple of other lawsuit threats, but they have tended to come shortly before bigger issues at the companies themselves. It’s an interesting correlation.”
As issues of corporate responsibility and responsible investing have grown, so has Eiris. It now employs almost 50 staff including teams of researchers covering 2800 companies worldwide. Webster says its basic work is the same as in 1983, albeit much more sophisticated: “We continue to use research to help investors take a view on companies and we will make recommendations, but we are not there to tell investors what to think. We don’t have an all-purpose ‘grade’ for companies. It depends what an investor is trying to do. We encourage clients to say what issues are important to them and then help them to ‘weigh up’ these issues in regards to their investments, which we can now do through quite complex software.”
As well as sourcing information from CSR reports, press and NGO articles and judicial documents, Eiris goes direct to companies to ask the questions it deems unanswered: “The quality of the research depends on the rigour of the process and ensuring you don’t get fobbed off. There is a lot of impressive stuff these days in company CSR reports, even if you have to say that in some areas such as climate change even the highest impact companies are doing enough to meet what politicians and scientists are saying is needed. If all companies mirrored the best operators, then investors could sleep easily. But while it’s only a minority, they can’t.” Notably, Eiris does the company research for the FTSE4Good index and has published numerous reports on issues as diverse as obesity and corruption.

“We encourage clients to say what issues are important to them.”

Webster says one of the biggest topics today is how to broaden research of companies in developing markets: “We are approached almost weekly by groups who would like to work on ratings in emerging markets because they see it as a useful way of getting companies interested.” In November 2007, Eiris partnered with the Johannesburg Stock Exchange to develop an enhanced SRI index, which Webster says could indicate where developing market research is headed: “The index includes criteria on black economic empowerment and HIV Aids, which are localised, important issues. Maybe corporate social responsibility in China won’t start with human rights, but this will gradually become part of it. It’s like Japan, where CSR has started with the country’s strong culture on environmental issues.”
Eiris’ work also includes comparative guides to ethical retail funds: “One of our aims is to help individual investors invest responsibly, even if our comparisons have sometimes been controversial. SRI retail funds often publish quite detailed information on what stocks they hold and we encourage this. The more people properly understand what they are investing in, the better for the sector. One remaining difficulty is for investors wanting to invest ethically to get the right advice. Some independent financial advisors (IFAs) are well versed in SRI and members of associations such as the UK Social Investment Forum (UKSIF), but it’s a challenge to convince more general IFAs not to put their clients off the subject.”
He says the institutional field has faced, and started to surmount, the same difficulties: “Five years ago everyone said the SRI case was hopeless because the consultants were a block, but that has changed. It’s great the consultants are getting into it.”
As such, he believes the future looks promising: “The UN Principles for Responsible Investment is huge. I say that because of the experience of the UK where the Pensions Act of 2000 (which obliged disclosure of a Statement of Investment Principles including SRI) got pension schemes asking themselves what they should do. One answer they didn’t come back with was to do nothing. In fact, two clear strategies came back: ‘corporate engagement’: usually delegated to the fund manager, and ‘integration’, to get fund managers to include ESG issues where they affect financial performance. The PRI has taken those two and added a regular reporting process on ESG. I know a lot of pension funds that now say they are going to have to address this properly. Crucially, the PRI also has sign-off from top-level management in asset owners and fund managers. All the projects that have done useful things in SRI have been a combination of good people and serious top-level support.”