There’s been a subtle semantic shift over the past few years in the SRI movement, as more companies and industry leaders choose to talk about sustainable investing, rather than socially responsible or responsible investing.
It may seem unimportant on the surface, after all, what’s in a name?, but it’s an issue many people take very seriously.
In a recent article posted on Responsible Investor, philanthropist and writer Stephen Viederman stated that “confusion over terminology describing an investment approach that considers environmental, social and governance (ESG) factors obscures the point of our work linking investing and corporate change.”
Viederman concedes that socially responsible investing, responsible investing and sustainable investing share a common goal: achieving long-term shareowner returns and corporate change, but he insists that the approaches are different.
Viederman believes SRI is about investing with personal values while sustainable investing (SI) is about investing for shareowner value using ESG to assess a company. “SRI employs positive and negative screens to identify good or bad companies across economic sectors; SI ranks the best and worst companies within economic sectors. Thus, relatively few integrated oil and gas companies will likely appear in an SRI portfolio, while the best of these companies will appear in SI portfolios.”
Viederman’s support of SRI or responsible investing is shared by KLD founder and SRI pioneer Amy Domini. In an interview with Responsible Investor earlier this year, Domini expressed concern about the use of the term sustainability. “It’s a bit of a marketing term; a comfort word,” Domini said. “Companies like Boeing have been talking about sustainability for a long time, even if the person repeating the mantra was then disgraced. Personally I like SRI or responsible investment. People say well are you then accusing other investors of being ‘irresponsible’? My answer is, yes, that is what we are saying!”
What do you think? Is there a difference between SRI and sustainable investing? Do names matter? Please share your thoughts with SRI Monitor.
Thursday, July 9, 2009
Tuesday, July 7, 2009
SRI at the G8 Summit
Transparency, integrity, social and environmental standards – an SRI conference?
Surprise!, it’s the G8 summit.
When the leaders of the G8 countries begin their meeting tomorrow in Italy, one of the things they will be discussing is a new Global Standard put forward by the OECD. The proposal is based on twelve principles that should be the basis for all international business dealings. The agenda is packed, making it likely that although these issues will be discussed, nothing concrete may result. However, it’s a good start, and hopefully will be followed up at the G20 meeting in Pittsburgh in September.
Common Principles and Standards on Propriety, Integrity and Transparency
1) A strong, fair and clean economy must be based on the values of propriety, integrity and transparency. These values should be promoted by public policies and be upheld by business. Effective monitoring of the implementation of these principles and standards should be undertaken on a regular basis.
2) Governments, companies and all business entities, irrespective of their legal form, around the world should recognise that these values are the keystone of a market economy which serves the needs and aspirations of citizens of every country and which deserves their respect and confidence.
3) Any “race to the bottom” in labour, social and environmental standards and regulatory arbitrage among jurisdictions should be prevented through international cooperation and convergence of domestic legal frameworks.
4) Tax evasion and avoidance are harmful to society as a whole and companies and all business entities, irrespective of their legal form, should fulfil their fiscal duties, including by respecting the arm’s length principle in transfer pricing practices.
5) Government / business interaction, including lobbying and “revolving door”, should be conducted in accordance with principles which are balanced, transparent, fair to all parties, and enforceable.
6) Business practices and governance of companies and all business entities, irrespective of their legal form - whether traded or non-traded, private or State-owned - should ensure accountability and fairness in the relationship between management, the board, shareholders and other stakeholders. Financial structures and instruments should not be misused in order to hide the true beneficial owner and corporate vehicles, in their various forms, should not be used for illicit activities, including money laundering, bribery, shielding assets from creditors, illicit tax practices, self-dealing and diversion of assets, market fraud and
circumvention of disclosure requirements.
7) Disclosure of timely and accurate information regarding the activities, structure, ownership, financial situation and performance of companies should be ensured.
8) Pay and compensation schemes should be sustainable and consistent with companies’ and all business entities’, irrespective of their legal form, long-term goals and prudent risk-taking.
9) Bribery, including bribery in international business transactions, should be established as a criminal offence and effectively prosecuted and punished.
10) Money laundering should be criminalised and the crime of money laundering should be applied to all serious offences, with a view to including the widest range of predicate offences.
11) Any form of protectionism should be banned.
12) Bank secrecy should not constitute an obstacle to the application of the above mentioned principles , including tax compliance worldwide.
Surprise!, it’s the G8 summit.
When the leaders of the G8 countries begin their meeting tomorrow in Italy, one of the things they will be discussing is a new Global Standard put forward by the OECD. The proposal is based on twelve principles that should be the basis for all international business dealings. The agenda is packed, making it likely that although these issues will be discussed, nothing concrete may result. However, it’s a good start, and hopefully will be followed up at the G20 meeting in Pittsburgh in September.
Common Principles and Standards on Propriety, Integrity and Transparency
1) A strong, fair and clean economy must be based on the values of propriety, integrity and transparency. These values should be promoted by public policies and be upheld by business. Effective monitoring of the implementation of these principles and standards should be undertaken on a regular basis.
2) Governments, companies and all business entities, irrespective of their legal form, around the world should recognise that these values are the keystone of a market economy which serves the needs and aspirations of citizens of every country and which deserves their respect and confidence.
3) Any “race to the bottom” in labour, social and environmental standards and regulatory arbitrage among jurisdictions should be prevented through international cooperation and convergence of domestic legal frameworks.
4) Tax evasion and avoidance are harmful to society as a whole and companies and all business entities, irrespective of their legal form, should fulfil their fiscal duties, including by respecting the arm’s length principle in transfer pricing practices.
5) Government / business interaction, including lobbying and “revolving door”, should be conducted in accordance with principles which are balanced, transparent, fair to all parties, and enforceable.
6) Business practices and governance of companies and all business entities, irrespective of their legal form - whether traded or non-traded, private or State-owned - should ensure accountability and fairness in the relationship between management, the board, shareholders and other stakeholders. Financial structures and instruments should not be misused in order to hide the true beneficial owner and corporate vehicles, in their various forms, should not be used for illicit activities, including money laundering, bribery, shielding assets from creditors, illicit tax practices, self-dealing and diversion of assets, market fraud and
circumvention of disclosure requirements.
7) Disclosure of timely and accurate information regarding the activities, structure, ownership, financial situation and performance of companies should be ensured.
8) Pay and compensation schemes should be sustainable and consistent with companies’ and all business entities’, irrespective of their legal form, long-term goals and prudent risk-taking.
9) Bribery, including bribery in international business transactions, should be established as a criminal offence and effectively prosecuted and punished.
10) Money laundering should be criminalised and the crime of money laundering should be applied to all serious offences, with a view to including the widest range of predicate offences.
11) Any form of protectionism should be banned.
12) Bank secrecy should not constitute an obstacle to the application of the above mentioned principles , including tax compliance worldwide.
Monday, July 6, 2009
Carbon risk evident in UK funds
There’s a wide range of carbon footprint exposure among the UK’s institutional equity funds, according to a new study conducted by Mercer and Trucost on behalf of WWF. That’s not much of a surprise, considering that the fund’s managers do not actively consider climate change factors such as greenhouse gas emissions as part of their investment process.
The report, Carbon Risks in UK Equity Funds, reveals that greenhouse gas emissions in 118 equity portfolios varied from 209 to 1,487 tonnes per million pounds invested. “A wide variation of carbon exposure was identified between companies in the same carbon-intensive sectors such as utilities, basic resources, construction and materials, oil and gas, and food and beverages.”
Asset managers do not consider climate change for a variety of reasons, including a belief that governments will not achieve emissions reduction targets or establish a global carbon price, short-term pressure to generate returns and the lack of a standardized reporting framework needed to deliver accurate data on company’s greenhouse gas emissions, the study says.
However, it adds that asset managers could dramatically reduce the carbon footprints of their funds through stock selection without the need to alter sector weightings or their overall investment strategy; they could also engage with portfolio companies and support government introduction of mandatory reporting requirements for corporate greenhouse gas emissions that would make carbon management easier and more effective.
Pension funds and fund managers could also integrate climate change criteria such as carbon performance into financial analysis, stock selection and active ownership practices, the report suggests, as well as invest in renewable energy and other energy efficient technologies.
“The results of our research with WWF and Trucost indicate that the investment management industry has a long way to go before pension funds can feel reassured that sufficient attention is being paid to the investment implications of the shift to a low carbon economy, “says Mercer principal Danyelle Guyatt, “It is important for pension funds to be aware of these potential risks and opportunities, and to manage these proactively through their strategic asset allocation decisions and the way they review and select fund managers."
The report outlines how fund manager complacency on corporate carbon performance could put pension fund assets at risk as carbon-intensive companies face rising carbon costs and their company valuations fall in the short-term in anticipation of future carbon risk.
“Fund managers “wait and see” approach to company exposure to carbon costs could expose pension funds to financial risk and result in mixed opportunities to position portfolios for a carbon-constrained economy.”
The full report is available here.
The report, Carbon Risks in UK Equity Funds, reveals that greenhouse gas emissions in 118 equity portfolios varied from 209 to 1,487 tonnes per million pounds invested. “A wide variation of carbon exposure was identified between companies in the same carbon-intensive sectors such as utilities, basic resources, construction and materials, oil and gas, and food and beverages.”
Asset managers do not consider climate change for a variety of reasons, including a belief that governments will not achieve emissions reduction targets or establish a global carbon price, short-term pressure to generate returns and the lack of a standardized reporting framework needed to deliver accurate data on company’s greenhouse gas emissions, the study says.
However, it adds that asset managers could dramatically reduce the carbon footprints of their funds through stock selection without the need to alter sector weightings or their overall investment strategy; they could also engage with portfolio companies and support government introduction of mandatory reporting requirements for corporate greenhouse gas emissions that would make carbon management easier and more effective.
Pension funds and fund managers could also integrate climate change criteria such as carbon performance into financial analysis, stock selection and active ownership practices, the report suggests, as well as invest in renewable energy and other energy efficient technologies.
“The results of our research with WWF and Trucost indicate that the investment management industry has a long way to go before pension funds can feel reassured that sufficient attention is being paid to the investment implications of the shift to a low carbon economy, “says Mercer principal Danyelle Guyatt, “It is important for pension funds to be aware of these potential risks and opportunities, and to manage these proactively through their strategic asset allocation decisions and the way they review and select fund managers."
The report outlines how fund manager complacency on corporate carbon performance could put pension fund assets at risk as carbon-intensive companies face rising carbon costs and their company valuations fall in the short-term in anticipation of future carbon risk.
“Fund managers “wait and see” approach to company exposure to carbon costs could expose pension funds to financial risk and result in mixed opportunities to position portfolios for a carbon-constrained economy.”
The full report is available here.
Thursday, July 2, 2009
The massive cost of addressing climate change
It’s a staggering figure. The International Energy Agency estimates that $1.3 trillion will be required just to halve greenhouse gas emissions from the global energy sector by 2050.
In a new green paper, the United Nations Environment Programme's (UNEP) Finance Initiative concedes that addressing climate change on a global scale will require an “unprecedented mobilization of financial resources.”
“Only a joint effort of public and private forces will achieve such a mobilization,” the paper adds, noting that the lion’s share of climate change investment is expected to come from the private sector. A range of public policy measures will also be required, including carbon markets and taxes, regulations and standards.
The paper calls for an agreement of ambitious emission reduction targets over the short, medium and long term, as well as “accelerated action to manage the unavoidable impact of climate change, particularly on poor communities.”
As well as the capital expenditure required to “decarbonize” and adapt the global economy, particular attention must be focused on how to expand the flow of public and private financing to the developing world, the paper states.
The UNEP’s proposals are based on six areas to enhance financial sector involvement:
1) Reducing the risk of low carbon investments in developing countries
2) Improving the operation of flexible mechanisms
3) Establishing funding for low carbon technology development and deployment in developing countries
4) Creating an international carbon insurance vehicle
5) Enabling enhanced investment in low carbon buildings
6) Expanding the application of insurance mechanisms for adaptation
“Climate science demands an ambitious climate agreement in Copenhagen,” the report notes, including emission reductions of 25% to 40% by 2020 from 1990 levels. The UNEP Finance Initiative is a partnership between the UNEP and 180 financial institutions from around the world. For more, read the UNEP’s latest green paper, Financing a Global Deal on Climate Change.
In a new green paper, the United Nations Environment Programme's (UNEP) Finance Initiative concedes that addressing climate change on a global scale will require an “unprecedented mobilization of financial resources.”
“Only a joint effort of public and private forces will achieve such a mobilization,” the paper adds, noting that the lion’s share of climate change investment is expected to come from the private sector. A range of public policy measures will also be required, including carbon markets and taxes, regulations and standards.
The paper calls for an agreement of ambitious emission reduction targets over the short, medium and long term, as well as “accelerated action to manage the unavoidable impact of climate change, particularly on poor communities.”
As well as the capital expenditure required to “decarbonize” and adapt the global economy, particular attention must be focused on how to expand the flow of public and private financing to the developing world, the paper states.
The UNEP’s proposals are based on six areas to enhance financial sector involvement:
1) Reducing the risk of low carbon investments in developing countries
2) Improving the operation of flexible mechanisms
3) Establishing funding for low carbon technology development and deployment in developing countries
4) Creating an international carbon insurance vehicle
5) Enabling enhanced investment in low carbon buildings
6) Expanding the application of insurance mechanisms for adaptation
“Climate science demands an ambitious climate agreement in Copenhagen,” the report notes, including emission reductions of 25% to 40% by 2020 from 1990 levels. The UNEP Finance Initiative is a partnership between the UNEP and 180 financial institutions from around the world. For more, read the UNEP’s latest green paper, Financing a Global Deal on Climate Change.
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