Who’s up, who’s down and who’s out? The annual announcement season from Dow Jones sustainability indexes FTSE is always good clean fun, though with a hard edge, as the attitude of investors is one of the acid tests of whether CSR really matters. The significance is not the volume of money in so-called ethical or SRI funds, which remains a very small fraction of the total. Rather it is what the investment methodologies teach us about how to achieve above-average returns.
The FTSE4good is essentially about screening out unethical ‘bad’ things, while the Dow Jones sustainability indices looks for ‘good’ drivers of sustainable performance. The former should help with short-term reputational issues – and the City is notoriously short term in outlook – while the latter is more forward looking and long term, preferable to aficionados of CSR and sustainable development. Indeed some SRI funds are now going this route, with Henderson’s 10-year old ethical fund reconfiguring itself as ‘Industries of the Future’. Both approaches have been running for long enough to see which achieves the better returns – cue for an academic study?
Another take on the business case for sustainable development comes from the insurance industry. Big firms like Swiss Re have taken the threat of global warming seriously and indeed their CSR reports feature little else. They should be viewed as the canaries in the mine, warning of dangers ahead for the rest of industry. Weather-related losses are rising – up seven fold over the last 30 years, with US insurers paying out $9.2bn in the 1990s according to research last month from Friends of the Earth America. That feeds straight through to higher premiums. Following Hurricane Katrina, other voices are speaking up on that side of the Atlantic too. Whether from the investor or the insurer viewpoint, money is starting to talk.
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