Public companies will come under increased pressure to focus on their impact on the environment following the announcement of a new policy by a leading UK fund manager.

Morley Fund Management, which manages Pounds 100bn of assets including the equivalent of 2.5 per cent of the UK stock market, will in future vote against top 100 companies’ annual accounts unless they include an environmental report.
Morley, owned by CGNU, the biggest UK insurer, says it will expect to see a "comprehensive environmental report" from all FTSE 100 companies. For companies in the FTSE 250 which were in "high risk sectors" and did not publish a report, it would abstain.

Its high risk sectors cover most of industry, including oil and gas, electricity, chemicals, automobiles, construction, healthcare and pharmaceuticals.

Morley’s move on its own will not be enough to stop accounts being passed. Nor are companies obliged to add environmental reports.

However, Dr Craig MacKenzie of Friends Ivory & Sime says other fund managers are likely to follow suit. This is because of two developments last year.

The first was the Turnbull committee, a successor to the Cadbury, Greenbury and Hampel corporate governance bodies. Turnbull introduced guidelines for risk management which extended to environmental risk.

Secondly, a new law has obliged pension funds to disclose in their annual reports whether they are taking into account environmental, social and ethical considerations when they make investments.

Pension funds in turn have put pressure on their fund managers to focus on these factors, not only by vetos at annual meetings but also by "engagement" with companies. According to research by Morley, of the top 100 companies, only 37 have published an environmental report although a further 21 said they planned to do so.

Ethical issues have been in the spotlight because of Huntingdon Life Sciences, Britain’s longest-established drug testing company. It was rescued from bankruptcy this year by a US backer but its share price has tumbled because of violent action by animal rights protesters.

FTSE, which produces the FTSE 100 index and is jointly owned by the Financial Times and the Stock Exchange, is consulting investors and companies on ethical issues.