HBOS urges funds to press for higher ethical standards

Insight Investment, the asset management arm of HBOS, yesterday threw down a challenge to the fund management industry to force companies to raise their standards in dealing with the developing world.

The money manager, which oversees £60bn worth of assets, making it a top 10 player in the UK, said that the mainstream investment industry must urgently agree to a common set of principles of corporate responsibility and see to it that companies adhere to these standards.

Insight said that just 10 per cent of the FTSE 100 companies had explicitly incorporated the Universal Declaration of Human Rights in their operating principles. He added that there were still "millions" of slave or bonded labourers in the world, some of whom work in the supply chains of British businesses.

Craig Mackenzie, head of investor responsibility at Insight, said it was no longer good enough to leave such matters to the "ethical" investment industry.

"Screened ethical funds make up a small proportion [of the industry] and they do not engage with companies that they disapprove of. We want to promote responsibility and engagement with the companies, rather than divestment [of unethical stocks]," Mr Mackenzie said.

He revealed that Insight had just written to BAT, the tobacco group in which it has a 1 per cent holding, asking it to explain why it had a venture in Burma, a pariah state. BAT has been criticised for its links with Burma, where it employs 400 people, and its deputy chairman, Kenneth Clarke, has admitted he is "uncomfortable" with the situation.

Insight yesterday wrote to its fellow fund managers and the chief executives of the FTSE 100 index, urging them to sign up to the initiative, with a report setting out the case for the project, which will seek to produce a common standard for British business.

Mr Mackenzie said the corporate governance movement has been "surprisingly successful" but there was no coherence on social issues. Governance issues had been building momentum since the late 1980s and was drawn together under the "Combined Code", published in 2000.

Insight said: "There is also increasing acceptance that shareholder activism should address both corporate governance issues and questions of corporate responsibility.

"However, while the UK's Combined Code provides a clear, consensual shareholder agenda on conventional corporate governance issues, shareholder activism on corporate responsibility is often fragmented, confused and lacking in legitimacy."