Socially responsible funds are still niche products, but their influence on conventional business is tremendous. Over the years their values have become part of mainstream markets.
 | The FTSE4Good Global Index (blue), which lists socially responsible entreprises, even outperformed the FTSE 100 Global Index (green) that doesn't use SRI criteria (Graph: FTSE) |
Socially responsible funds make up for less than one percent of the European fund market, according to figures from the European Social Investment Forum (EUROSIF). The funds' influence on mainstream markets, however, goes well beyond their economic impact. Sustainable policies have become a topic for global players like British Petrol, Toyota or E.ON, because clients and investors started asking new questions.
“Investors are now thinking about environmental and social issues as risk issues in their own right,” explains Mark Robertson of sustainable investment adviser EIRIS. “It is not necessarily from a traditional ethical perspective, but increasingly because it makes financial sense to take that kind of thing on board.”
The FTSE4Good Index or the Dow Jones Sustainability Index reflects this interest in sustainable strategies. The indexes list a number of global heavyweights that do well by social and environmental standards like JP Morgan, Bank of America, SAP, Toyota, and Allianz. The FTSE4Good at times even outperforms conventional benchmarks such as the FTSE All Share Index.
EUROSIF reacted to this mainstreaming by distinguishing between core SRI, that is traditional SRI funds with strict investment criteria, and broad SRI, the vast amount of funds that start to look at sustainable policies as one criteria among many. According to EUROSIF’s calculations, core SRI investments in Europe amounted to some 103 billion euros in 2005, while broad SRI was worth an estimated 1.033 trillion euros.
Stakeholder Activism for Environmental Concerns
Besides introducing new investment criteria, SRI funds also act as watchdogs that convert companies ignorant of their impact on environment or society into more responsible corporations. Calvert Asset Management, a U.S. investment house that specializes in SRI funds, recently criticized U.S. insurers for abstaining from the Global Roundtable on Climate Change, while European peers like Swiss RE or Allianz were at the forefront of the initiative. Calvert fund managers demanded disclosure about how insurers were dealing with climate change risks. One result of this so-called shareholder activism, was that Prudential Financial, a major U.S. insurer, began to more openly address climate-related concerns.
Another example of how investors are influenced by SRI comes from Scandinavian financial services provider Storebrand. In 2005, the company decided to subject all of its funds - about 25 billion euros in assets - to a common minimum standard of social responsibility.
“We had been doing this with some funds since 1995," says Christine Meisingset, Head of SRI research at Storebrand. "We saw that it is a good idea and it is not hurting returns, so we decided to move forward and do more of it” The motivation, Meisingset says, was an ethical one. “It is not right that we invest our customers money in areas that will be detrimental to future generations.” Return on investments have hardly been affected by the move, she says.
editor: Thilo Kunzemann
publishing date: March 16, 2007
