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GreenMoney Journal - publishing since 1992
Fall 2010 issue
Socially Responsible Investing Better Companies, Better Communities
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INTERNATIONAL SOCIALLY RESPONSIBLE INVESTING
Mark Regier
What will international socially responsible investing look like in 10 years? Given the changes
that have occurred over the past five years and the fact that the pace is unlikely to slow, its
probably impossible to predict what SRI will look like five years from now, let alone ten! However,
the exercise is one I find encouraging. While we have no Rosetta stone to unlock the code of SRIs
future, there may well be some clues in the trends and events of recent years.
A
new understanding of "international" investing
Currently in the U.S.,
"international SRI" means "social investing in non-U.S. companies" and is often seen as a distinct
category within the industry. Within a decade as capital markets develop and overlap and social
research sources deepen SRI will take on a more holistic, non-geographic definition. With foreign
companies listed on U.S. stock exchanges, U.S. corporations with heavy non-U.S. operations, and the
push toward common, world-wide standards such as the Global Reporting Initiative, we will talk
about the activities and responsibilities of social investing regardless of where a company is
incorporated. We will see further erosion of our "here" and "there" perspective. Social investors
in the U.K. and Europe will help lead the way in this more "globalist" perspective.
A new, broader understanding of "risk"
Like so many other aspects of
society, the collapse of Enron will leave a legacy on a number of fronts for social investors.
Perhaps most important will be an acceleration of the trend within the financial community to take
a new look at the concept of "risk." This will include concerns that have been raised by social
investors around the world for years. Organizations like Innovest and Oekoem Research have already
begun drawing environmental performance into the sphere of "credible concerns" for mainstream
financial analysts. Already, the awareness of the financial exposure due to global warming is on
the rise in many market sectors. Enron and Anderson have added new concerns of "risk" related to
auditor independence, internal conflicts of interest, and the need for new levels of transparency.
Issues of executive compensation, inter-and intra-board relationships, analyst independence,
industry oversight will also receive greater attention. The heightened awareness of "risk" opens
the door for additional issues of social concern to be viewed as they always should have been
as financially pertinent to all investment decisions. Calpers has already taken a step in this
direction by including compliance with ILO conventions in its country-level risk assessment that
recently excluded four Asian countries from its emerging markets portfolio.
Continued segmentation and sophistication in shareholder activism
The
successes that shareholder activists have experienced in the past decade have created a new set of
challenges that are just beginning to be understood. On the corporate side, shareholder engagement
has led some companies to a new level of respect and appreciation for this type of interaction.
At the same time, others continue to be jaded by what they see as a wave of external,
often disparate demands. In almost all cases, corporations have seen the value/need to at least
"appear" to be engaged in dialogue while becoming masters of "shaping" the process to their
benefit. For the success of shareholder engagement to continue, there must be increased
sophistication on the part of SRI advocates at the negotiating table. This will be especially true
as more SRI investments become "international," facing new and often unfamiliar understandings
of corporate responsibility and investor engagement. It is a challenge; however, Im certain our
industry can meet it.
On the activist side, the next decade will likely see a
"re-understanding" of the close relationships many social investors have with activist,
non-governmental organizations. The success of early investor engagement of corporate leaders and
its ability to bring about change has drawn as much attention within the NGO community as it has
within boardrooms. A number of activist organizations see shareholder advocacy and access to
corporate meetings as just one more tool to leverage or embarrass a company into changing.
Other NGOs have fully embraced the opportunities and more importantly, the limitations of
serious corporate dialogue. Already, there is a growing awareness that while interests of advocacy
groups and social investors are at times shared, their ends are not necessarily synonymous. The
growing sophistication of shareholder engagement on the corporate side will lead to a similar
evolution between social investors and their advocacy partners. We will see a growing appreciation
and understanding of the roles all parties can play in creating a sustainable and just world.
The process and relationships of shareholder advocacy will be further shaped by increased
interaction and collaboration with non-U.S. social investors who have distinctly different
histories surrounding corporate engagement.
The continued growth of SRI in volume
and respectability
The quest for asset respectability has been the "holy grail"
of the social investment industry for thirty years. While many of us in the U.S. believe we have
reached this point, the view from a global perspective may be different. In some cases the growth
of socially responsible investing will face fewer hurdles and skepticism in others, the barriers
will be much greater.
One thing seems undeniable: in the next ten years, socially
responsible investing will become an increasingly important voice in global financial markets. From
the recent growth of interest in SRI in Europe and the U.K. and the establishment of a pan-European
Social Investment Forum to the explosion of SRI mutual fund options in Canada to the founding of
ASrIA, Asias first organization dedicated to SRI, the interest and potential impact of SRI are on
the rise. With the spread of social investment activists and organizations, will also come
increased opportunities for U.S. social investors to more effectively engage their values through
their non-U.S. investments.
Much of the growth internationally will be fueled by the
global growth of investing in general. The development of a pension industry in Asia, the launch of
401ks in Japan, and the growth of equity investing in Europe will serve to expand the opportunity
and influence of SRI around the world. This movement will be aided by increased government
regulations for disclosure and the growing presumption that corporations must act in socially
responsible ways.
It is perhaps the growing interaction and connection of social
investors around the world that holds the greatest promise and the most surprises for the
future of socially responsible investing. As such committed individuals and organizations along
with NGO partners and even savvy corporate leaders increasingly combine their skills and passions
to face common challenges, the prospects for a truly international, truly limitless future seem
bright.
Article by Mark A. Regier, Stewardship Investing Services Manager, MMA Praxis
Mutual Funds & Chair, Intl. SRI Working Group, Social Investment Forum US. For more information go
to-http://www.mmapraxis.com
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