Socially Responsible Investment (SRI) – Time to take it seriously?
For watchers of the responsible investment world, the recent ousting of five signatories from the United Nation’s Principles of Responsible Investment (PRI) last month is an indication of the initiative’s growing muscle.
Increasingly, investment professionals have come to accept that environmental, social and corporate governance (ESG) issues are part of their fiduciary duty and can affect the performance of investment portfolios. The UN’s PRI aim is to provide the framework for doing so.
In 2005 the United Nations Finance Initiative invited a group of the world’s largest institutional investors to join a process to develop the Principles for Responsible Investment (PRI). Individuals representing 20 institutional investors from 12 countries agreed to participate in the Investor Group. Today, the number of signatories has grown to 573 – and includes funds and asset managers from Merseyside to Malaysia, Belgium to Brazil, large and small. There is a bias towards European and US participants, but emerging markets are beginning to make their mark too.
The PRI states that its principles are ‘voluntary and aspirational’ and provide ‘a menu of possible actions for incorporating ESG issues into mainstream investment decision-making and ownership practices’. It demands commitment to the six principles, ranging from integration through to engagement, implementation and reporting, and demonstration of progress on each. It was failure to deliver on the one mandatory duty – reporting their annual progress – that led to the de-listing of the five signatories. In the wake of virtual financial collapse, and faced with an overwhelming trust deficit, financial institutions’ involvement in initiatives such as the PRI can only be a good thing. Designed not only to deliver better long-term financial returns, it also seeks to ensure a closer alignment between the objectives of institutional investors and those of society at large.
The SRI ‘movement’ as a whole has suffered from the absence of rigour in the evidence, process and metrics needed to overcome a industry skeptical about the role ESG issues have in defining corporate profitability. The recent report on its progress this year suggests that the PRI is gaining both ground and credibility. Challenges remain – not least a lack of good quality underlying data from companies, and concerns about commercial confidentiality. But with an investment clout now representing a total of over $18 trillion of assets under management it’s clear that the PRI is the biggest show in town.
Nokia, Sodexho and Unilever named leaders of Dow Jones Sustainability Index
The SAM Group released its 2009 review of the Dow Jones Sustainability Indexes (DJSI) on September 3, adding 33 companies to the global list of the world’s largest, most sustainable firms, and removing 33 firms, leaving the list at 317 in total. SAM and Dow Jones based their review on a number of factors, including corporate governance, climate change strategies, supply chain standards, branding and additional criteria specific to each of 58 sectors. The North American index included 26 new firms and deleted eight firms, bringing the list to 139 in total. The largest additions to the DJSI World list include Johnson & Johnson, Coca-Cola and Samsung Electronics, while the biggest deletions from this index are National Grid, Mitsubishi Estate, and SABMiller. Contact: Sam Group www.sam-group.com
Five delisted as PRI steps up transparency
Five financial institutions were delisted as signatories from the UN-backed Principles for Responsible Investment Initiative (PRI) in August, for not participating in the Initiative’s annual Reporting and Assessment process. Participation in the annual survey is mandatory for asset owner and investment manager signatories, though there is a grace year to allow new signatories to learn from their peers. A total of 284 signatories participated in this year’s survey, the aggregate results of which can be found in the PRI Report on Progress, 2009. The institutions delisted from the Initiative were DESBAN, Christopher Reynolds Foundation, Foresters Community Finance, Oasis Group Holdings and Trinity Holdings. Meanwhile, 93 new signatories joined in 2009. Contact: Principles for Responsible Investment www.unpri.org
Track record of positive net sales since 1992 continues for ethical funds
On 10 August the UKSIF Chief Executive announced that net sales of ethical funds open to investors looks positive for the second quarter, with ethical investors remaining loyal to their funds. Leading ethical fund providers have reported positive news about their second quarter net sales to UKSIF, with many saying June figures were better than May.
According to the Investment Management Association (IMA), net sales of ethical funds turned negative in second quarter this year for the first time since 1992 but UKSIF says that this was due to a single fund closing near to the end of the quarter. Contact: UKSIF www.uksif.org
ESG disclosure by water services sector is insufficient, report finds
More than 15 water-focused mutual funds and exchange traded funds (ETFs) have been created in recent months, but most investor-owned water utilities have a long way to go in order to provide adequate environmental, social and governance (ESG) disclosure to investors, according to a major new study from the Interfaith Center on Corporate Responsibility (ICCR), a coalition of nearly 300 faith-based institutional investors representing over $100 billion in invested capital. The new report, ‘Liquid Assets: Responsible Investment in Water Services’ scores 12 public and private utilities on 21 key disclosure issues, with a possible score ranging from a maximum of 63 to -63. Contact: Interfaith Center on Corporate Responsibility www.iccr.org
Intel Capital announces five cleantech investments
Intel Capital, Intel Corporation’s global investment organisation, recently reaffirmed its dedication to foster clean technology innovation with the announcement of five cleantech investments. The deals, which total approximately $10 million and span two continents, include first-time investment in US based CPower (demand response and energy efficiency) as well as follow-on investments in Ireland based Powervation (digital power control) and US based companies Convey Computer (energy efficient high performance computing), Grid Net (smart meter infrastructure) and iControl (home automation and monitoring). Contact: Intel www.intel.com
IFC breached standards on palm oil financing – ombudsman
An audit by the International Finance Corporation’s (IFC’s) own watchdog has found it failed to apply its own environmental and social standards in a series of investments and loans to palm oil trading and plantation owner Wilmar Group. The report by the Compliance Advisor Ombudsman of the IFC, criticises four financing facilities made between 2003 and 2008, and was produced in response to complaints in July 2007 by a coalition of 19 NGOs, smallholders and indigenous peoples’ organisations living and working in Indonesia. Wilmar Group was accused of activities in Indonesia such as cutting down primary forest, seizing indigenous peoples’ lands and failing to carry out or wait for environmental impact assessments. Contact: Compliance Advisor Ombudsman www.cao-ombudsman.org
UN acts to boost Responsible Property Investment
To advance Responsible Property Investment (RPI) thinking and practice globally, the Property Working Group (PWG) of the United Nations Environment Programme Finance Initiative (UNEP FI) launched the first in a series of toolkits aimed at helping investors understand and apply the principles of RPI, on August 19. The first toolkit – ‘Committing and Engaging’- uses case study material to identify the seven main steps organisations need to take to lay down a solid foundation to institutionalise RPI. These steps include understanding the meaning and value of RPI for an organisation, identifying material risks and opportunities, managing and measuring success, and collaborating with stakeholders to develop and mainstream RPI practices. Contact: United Nations Environment Programme www.unep.org
SAM and Dow Jones Indexes launch Dow Jones Sustainability Japan 40 Index
The SAM and Dow Jones Indexes announced on August 3 the launch of the Dow Jones Sustainability Japan 40 Index (DJSI Japan 40). The index measures the performance of the largest 40 sustainability leaders in Japan and provides market participants with a highly liquid and tradable sustainability benchmark for Japanese equities. The Dow Jones Sustainability Japan 40 Index is selected and weighted based on the SAM sustainability scores. Contact: Dow Jones Sustainability Indexes www.sustainability-indexes.com
Liza Lort-Phillips is an Associate Director at Corporate Citizenship
Email Liza to discuss China, supply chain, brand footprint and karate tips! liza.lort-philips@corporate-citizenship.com
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