Friday, November 6, 2009

Thinking about SRI

Yesterday, Legg Mason Canada held a symposium at the National Club in Toronto showcasing their investment management subsidiaries. The Think symposium was aimed at highlighting the latest thinking on fixed income and equity markets. In addition to the usual sessions on US equity, emerging markets and fixed income, there was a presentation on Responsible Investing, entitled ‘The Time is Now’.

The Responsible Investing panel featured Mike Dieschbourg, CEO of Global Currents Investment Management and Mary Jane McQuillen, Director and Portfolio Manager at ClearBridge Advisors, and a member of the UNEP FI Asset Management Working Group.

The presentation was introductory in nature, starting with a review of the UN PRI, which now has over 500 signatories worldwide representing over 18 trillion USD of assets. Tidbits such as the fact that 385 of the Fortune 500 companies have signed on to the Carbon Disclosure Project, including Legg Mason, and the recent addition of ESG metrics on Bloomberg terminals served to confirm the ever broadening appeal of socially responsible investment principles. The message to the largely institutional crowd in attendance was ‘SRI is not on the fringes anymore’.

Mr. Dieschbourg shook up audience preconceptions by asking ‘What was Forbes Green Company of the year in 2009?’ The answer is Exxon Mobil. Whether or not we agree with that choice, it was an excellent way to engage people and get them thinking about what social responsibility means today. Pushing companies to improve using shareholder engagement is at least as important now as negative screening. He stressed that SRI is about “putting money and capital in the hands of people who are doing the right thing.”

Carbon risk was used as an example of an ESG factor that has a financial impact and an impact on stock prices. But this risk varies widely among companies and investors need to know which companies are which. In this case, ESG analysis clearly demonstrates its value as a powerful enhancement to traditional investment analysis.

Mary Jane McQuillan began by looking at how far SRI has come. In the past she said, SRI was about performance, and then about products, both of which have been addressed. Now the focus is on education, with respect to fiduciary duty and responsible investment. The CFA Institute has added ESG analysis to its curriculum, and it is expected that some of that material will soon be covered in the CFA exams.

As someone closely involved with both the Freshfields report and Fiduciary II, Ms. McQuillan hoped that these publications, as well as others by UNEP FI, would enable trustees and asset managers to start having the discussion about ESG risks and opportunities. “When it comes to ESG integration, having the discussion is the first part of the process.”

With specific reference to Canada, Ms. McQuillan felt that as the worlds largest exporter of energy intensive products, many with environmental and human right implications, we needed to focus on ESG now. Mr Dieschbourg summed it up neatly with a hockey metaphor “You can ask yourself, did you make the play, did you take the shot, but it’s the end of the game that you have to think about.”

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