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GreenMoney Journal - publishing since 1992
Fall 2010 issue
Socially Responsible Investing – Better Companies, Better Communities
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Developments of SRI in Europe
Timo W.M. van den Brink, Director Triple P Performance Centre, The Netherlands and the annual Triple Bottom Line Conference
Interest in socially responsible investments (SRI) in Europe has grown considerably over the last
five years, and its profile has recently risen even higher with the launch of a number of national
initiatives. The UK, France, Germany, Belgium, and Sweden, to mention just a few, have all
addressed corporate sustainability in some way, lifting the sustainable investments community to a
more prominent position within financial markets. As of this writing, some 72 funds exist in Europe
that use environmental and social screening.
Investments in sustainable companies are easier
to find today, though more difficult to select. Regulations will help promote socially responsible
investments but the real SRI challenge is to those professionals who must address its value in
financial communities and corporations alike.
The first SRI-products in Europe, set up in
the early 60s and 70s, were niche markets, only to emerge in a few years as more important ones.
The early funds were run, for the most part, for the benefit of organizations marked through a
shared ideology or religion; screening often focused on issues such as avoiding investments in
armaments, child labor and racial activities. The funds were small, but with strongly committed
investors. Since these origins, the SRI sector on both sides of the Atlantic has been one of the
fastest growing areas of equity investment.
In Europe, the driving force behind the
sector's growth has been largely from retail investment. SRI has attracted attention from
institutional investors only recently. The UK legislation, which in mid-2000 intensified attention
on socially screened investment products, has been followed by German, Swedish and French
initiatives for more transparent investment guidelines. In contrast, institutional U.S. investors
have long been more actively involved.
Today, most European financial institutions react
to social investments like the fighters of ancient Athens and Sparta. Pericles declared that the
pride of Athens lay in "happy versatility." "We rely," he said, "not upon management or trickery,
but upon our own hearts and hands. In the matter of education, whereas they (the Spartans) are
always undergoing laborious exercises to make them brave, we live at ease, and yet are equally
ready to face the same perils." The financial Spartans ask "Why should one allow those 'versatile
persons' without financial bones into the holy chambers of proven performances?"
I admit
that the job of researching and identifying productive, "triple-bottom line" companies is not easy.
The laborious exercises that have made heroes of financial analysts have not prepared them for the
present perils. SRI research is far from comparably transparent, nor is it accepted like financial
analyses, let alone suited to the traditional tools and paths of financial analysts. But a growing
number of investors are eager to find those analysts who offer them full service in financial,
environmental, social and ethical rewards.
More mutual funds tailored to sustainability
are appearing. Rhineland investors are not satisfied with simple "avoidance," - the exclusions of
companies in certain sectors, be it alcohol, tobacco or other issues - as the SRI accounts in
Anglo-Saxon markets are based. They prefer the positive and proactive "seeking" approach. European
investors emphasize their direct investments on those countries and enterprises that add a
particular value to society. For example, they invest in companies that take responsibility for
their operations at home and abroad.
A workable European definition of SRI is: "investing
to combine financial objectives with commitment to values such as social justice, healthy
environment and economic development." Within this broad European definition of SRI, two main
categories can be identified: Triple bottom line screening - the selection of stocks and shares in
unit trusts, investment trusts or other investment portfolios on economic, social or environmental
grounds; and Shareholder influence - seeking to improve a company's ethical, social and/or
environmental behavior by means of shareholder dialogue, pressure and voting at annual meetings
with companies.
One issue that can easily create a crisis of confidence among SRI
investors is the process of screening which companies to include in triple-bottom line investments.
An investment is one of the most powerful agents available to most of us, whether individuals or
members of a pension fund, for changing the corporate sector. If this view is widely recognized in
the U.S., it is only now winning ground in Europe, especially for those individuals who trust their
money and savings to large pension funds and privately held mutual funds. Higher investor
expectations of social, ethical and environmental scrutiny in corporations have led a number of
analysts to address sustainability issues. There is also a general expectation that high standards
of research should avoid unfairness or unintended consequences as social, environmental and other
ethical concerns become a larger part of the investment scene.
We should avoid defining
exactly how investors should make use of sustainability investment products. Innovation and
development require creativity rather than control. Given good information, it will be better for
the development of the SRI sector to be driven by market forces and by investor perceptions than by
our attempts to control the market. In fact, environmental funds might never have happened if SRI
had been carved in stone 15 years ago. Public awareness of sustainability challenges financial
analysts to face the perils they face.
For further information on socially responsible
investment in Europe, please visit the Triple Bottom Line Conference website at-
http://www.tbli.org.
Contact Timo W.M. van den Brink by email at- timo@tbli.org
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