Socially responsible investment and its impact to your company
20th July 2009 by Richard Gunawan
There is growing market demand for Socially Responsible Investment (SRI) and more investors are willing to invest over the longer term in the organisations that contribute positively to sustainable development, public benefit and environmental protection. The recent credit crunch has provided an opportunity for pension funds to exit from traditional markets and to diversify their portfolios to include sustainable and socially responsible investments.
Richard Gunawan, Vice President of LRQA spoke to Martha Grossman, General Manager of RepuTex in Hong Kong, to better understand the implications of this trend on the business community. RepuTex has analysed over 4,000 stocks internationally according to its detailed methodology platform which considers Environmental, Social, Governance (ESG) and carbon factors. The firm has also established environmental and sustainability indices which cover the S&P 500, the MSCI World Index, the S&P ASX 300, the Nikkei 225, the CSI 300 (China A) and the Hang Seng Index in Hong Kong.
Grossman suggests companies that fail to disclose their ESG performance will find it more difficult to obtain funds from institutional investors. Several pension funds, for example, consider climate change a key criterion and will exclude companies that cannot substantiate their environmental commitments. A number of ethical funds will only invest in companies which demonstrate credible corporate governance frameworks and will not tolerate bribery, the violation of human rights or the use child labour. The absence of a proper management system, policy and review will deter fund managers and investors need to be more savvy in their selection of companies that prove a genuine commitment to sustainability issues. The same investors are increasingly cautious of glossy CSR reports that do not address materiality. Ethical Investment Research Services (EIRIS) also said that responsible American investors will use negative screening, while their European counterparts will rely on corporate governance to cherry pick companies that best meet their investment criteria.
Based on the latest survey conducted by EIRIS, 70% of the respondents stated that lack of ESG disclosure is a key challenge to investing in emerging markets. Investors like to be sure that companies will take appropriate measures to mitigate ESG risks. However, some companies in emerging markets do not regard ESG issues as material to their businesses. Grossman says she believes that more transparency and disclosure is required to increase investment research. China and India will ultimately benefit the most from these responsible investments, especially in the areas of renewable energies and clean technologies.
Richard Gunawan is Vice President for business and sustainability development for LRQA Asia. He has more than 15 years of commercial experience and is committed to assisting businesses in Asia to mitigate risks and to grow in line with CSR principles.