- guardian.co.uk, Sunday February 2 2003 01.35 GMT
When I met her in the swanky modern offices of Morley Fund Management in the heart of the City, Clare Brook apologised for wearing a suit. You might think that is because, as a veteran of the ethical investment world, she normally wears a cardigan and sandals, but it's not, and she doesn't. It is just that she had been presenting to a potential client, so was more dressed up than usual.
Brook is Morley's director of socially responsible investment (SRI) - a term she much prefers to the puritanical-sounding 'ethical'. She only fits the cardigan-wearing caricature to the extent of cycling to work (when the weather is decent). She is not at all puritanical, aiming to make sure the team has fun as it investigates what companies are doing and are not doing and translates that into investment decisions.
For Brook, SRI is about sustainability, not morality, and especially the sustainability of financial returns. The funds invest in companies which, at best, have a positive impact on society and the environment, and at worst are broadly neutral.
'I've always been against the "ethical" title,' she says, explaining that the team aims 'to add value in understanding the risks of companies' impacts on the environment and society'.
SRI has grown up enormously over the past few years, as Brook and others at the leading SRI houses have come in from what many in the City regarded as the loony fringes. Even broking houses such as Dresdner, HSBC, UBS and Goldman Sachs have appointed SRI analysts.
Brook has been in the area from the beginning, joining Jupiter as a fund manager in 1990 when the firm launched its first environment fund. From Jupiter she went (with Tessa Tennant and others from the Jupiter team) to NPI (now Henderson) and was hired by Morley a couple of years ago, along with many of her NPI colleagues.
She now heads a 10-strong team of researchers and fund managers and is responsible for £250 million in specific SRI funds. But as she explains, the team also has a wider role in relation to the £22 billion of UK equities under Morley's care.
'We have gone beyond "You sit in the corner and run your SRI funds",' she says. Brook and her colleagues have their say with any company that Morley may hold or is thinking about holding. 'We focus on the whole universe of stocks, and engage with companies such as Rio Tinto, BP, British Energy or British American Tobacco even though we don't hold them in our SRI funds.'
The mainstream fund managers describe the SRI team as 'tree-huggers', with what Brook hopes is affection. She certainly believes their initial scepticism has been overcome.
'To start with everyone was a bit sniffy about a whole team coming in. But I like to think we've won them over, through a combination of the way we work, being a good bunch of people to have around, and showing them that the issues are relevant and can help them understand a company in depth.'
She also believes the sustainability perspective has helped them make money - a sure way to any fund manager's heart. British Energy is the most obvious example, where the heightened awareness of nuclear risks led Morley to sell out before the collapse - bonds as well as equities.
While SRI is primarily about investing in the better companies and encouraging them to do even better, 'engaging' with the likes of British Energy is important and may hopefully help them 'see the error of their ways' - although the nuclear company was not impressed by Morley's analysis, as it made clear in some heated exchanges.
'They showed a lamentable inability to come to terms with the business risks of their activities and to our great satisfaction that did lead them to come unstuck,' Brook says.
Morley has developed a five-level matrix that takes account of industry sector sustainabilty but also of management 'vision and strategy'. The matrix distinguishes between those which are 'fundamentally in conflict with sustainable development' (for example tobacco) and those which could address problems through strategic shifts (for example energy). There are three levels of acceptable business sectors.
The management axis is also important. Brook's funds will not invest in any company with a management grade five, which means it lacks awareness of its social and environmental impacts. Companies with no real vision and poor performance can get in so long as they are in the top two sustainability categories. And in fact institutional clients have the option of investing in companies such as Shell and BP which score poorly in some categories but are rated highly on management.
The average chairman, chief executive or finance director must find it daunting being confronted by Brook and her team. As she says: 'They get the financial questions they are used to. But then we come in with our SRI questions and it may be the first time they have been asked.'
There are big differences in how people respond. Pearson's Dame Marjorie Scardino was almost embarrassingly enthusiastic. David Prosser from Legal & General dismissed SRI as a preoccupation of teenage girls - which Brook almost found flattering.
She says the Morley team needs to get smarter at asking the questions. In fact they recently had an 'away-day' to work out how, under the title: 'Now that we've found love what are we going to do with it?' They decided the answer to how they can use their new-found access more fruitfully is to ask more open-ended questions that are less likely to elicit trite answers, and to focus on long-term business risk rather than being moralistic or crusading.
They also try to help. For example, when Morley issued its warning in 2001 that it would vote against the annual reports of FTSE companies which failed to report adequately on environmental issues, the team also produced guidance on what it expected from companies' environmental reports. Many companies have subsequently decided to produce reports, although Brook wouldn't claim that it was solely because of Morley's pressure.
More broadly, the team has drawn up sector 'blueprints' to set out improvements companies need to make.
The blueprint exercise will go further this year. Morley plans to hold a series of industry 'round tables' with companies and others such as NGO representatives and regulators, to develop the initial outlines. 'We want to try and hammer out whether they are realistic, and what best practice would be,' Brook explains.
That kind of challenge makes her day rather more varied than the average fund manager. The day includes the usual fund management tasks. She jokes that there is quite a lot of worrying about lunch or who is going to get the tea and fruit. And then there are those besuited presentations to potential clients.
It hasn't been easy winning new business from highly conservative pension funds which have been preoccupied with the plunging value of their assets and the rising longevity of their members.
'A lot of pension fund members are interested, but the trustees stand between them and us. They can be quite reactionary and conservative.' But she remains optimistic, of course - even to the extent of expecting a market rally in the second quarter.
It has been slow going, but some trade unions and local authorities in particular have handed over some or all of their funds to Brook and her team.
Sometimes the arguments (and the suit) work.
