SRI New generation of global investors
Christine Loh Guest analyst cloh@civic-exchange.org (852) 9802 8888 May 2001
Socially responsible investment Building sustainable prosperity Socially responsible investing pays. Despite market volatility, some of the leading SRI funds performed reasonably well in the course of 2000 – and over the last five years, they have outperformed traditional funds by impressive margins. This is a trend investors should watch. SRI has already become mainstream. The fact that both the Dow Jones and the FTSE launched socially responsible indices, in 1999 and 2001 respectively, demonstrates notable acceptance by international institutional investors.
Social responsibility – A new drumbeat How does SRI work? Growth of SRI SRI performance record
SRI strategy is generally more forward looking. SRI funds invest in the industries of the future, such as renewable energy, information technology, telecoms, multimedia, mass transport, education, heath care, pollution control and water management, which will provide gains in the medium-term, thereby sustaining good performance. SRI is ethically compelling. As people become more sensitised to global social and environmental challenges, they increasingly seek SRI options. Indeed, the well informed have already worked out that Asia is ripe for SRI. They understand that small investments in emerging markets can make a greater push for change than in large developed markets. SRI has made an entrance in Australia, Japan and Singapore. With Hong Kong’s Mandatory Provident Fund scheme having kicked off this year, there are opportunities in Hong Kong as well. A number of established international SRI funds are already active in the region. SRI will gain momentum in Asia. The arrival in Hong Kong of privatesector-driven initiatives, such as the setting-up of the Asian Corporate Governance Association and the Association for Sustainable and Responsible Investment in Asia (ASRIA), is an indication that SRI will make an impact. Asian companies looking for international capital will be put under the international spotlight on their social and environmental performance. SRI gives companies competitive advantage. Globalisation has seen the role of governments shrinking and an increasing role for the private sector in setting social policy. The confluence of trends to improve the world’s financial architecture, raise corporate governance standards and promote corporate social responsibility all aim to make companies more socially responsible worldwide: wherever they operate. SRI is very much a part of these trends.
www.clsa.com
Christine Loh is CEO of Civic Exchange, a non-profit, public policy think tank in Hong Kong. She was a member of the Hong Kong Legislative Council from 1992-1997 and 1998-2000, before which she had a 14-year career in commodities trading and strategic management in the private sector.
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Contents
SRI
Contents
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Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
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Social responsibility – A new drumbeat . . . . . . . . . . . . . . . . . . . . . . . .
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How does SRI work? . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
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Growth of SRI . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
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SRI performance record. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
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Conclusions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
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Appendix 1: SRI Funds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
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Appendix 2: How to practice SRI . . . . . . . . . . . . . . . . . . . . . . . . . . .
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Appendix 3: SA 8000 – Global Humane Workplace Standard . . . . . .
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Appendix 4: SA 8000 accreditation bodies . . . . . . . . . . . . . . . . . . . . .
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Appendix 5: ASRIA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
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Appendix 6: ACGA Charter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
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Appendix 7: Useful websites not provided in the text . . . . . . . . . . . .
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SRI
Introduction SRI is now mainstream investing
Despite a slow and somewhat uncertain start, socially responsible investment has arrived to stay. Up to the mid-1980s, SRI was considered to be “feelgood”, politically correct investing that would remain a sideshow to the status quo. Today, it is clear that investing with a social conscience is fast becoming a part of the mainstream. So why is SRI growing so rapidly now, albeit from a low base? With better education and a general increase in social and environmental awareness, more and more people expect to invest their money in line with their personal values. People are demanding that not just governments, but companies, be accountable and responsible for the general social good of the world – because they believe this is the right thing to do. And so it is. The case is compelling.
SRI, corporate governance and corporate social responsibility are related issues
The SRI movement is very much linked with the corporate governance (CG) and corporate social responsibility (CSR) movements. Indeed, the three are very much parts of a whole. A discussion about SRI, therefore, cannot ignore developments in CG and CSR and vice versa. The United Nations (UN) and its agencies, governments and the financial services industry are all responding. They are pitching in to create what has become a fast-growing area of international, national norms building. Responding to the apparent need to benchmark the performance of SRIinspired money-management funds, Dow Jones launched a series of SRI indices in 1999, followed by the FTSE in January 2001. The concept of SRI is now knocking at Asia’s doorstep. The time is ripe for Asian-based SRI funds to be developed.
Definitions
It may be useful to start with clarification of a number of related terms. SRI describes financial services that combine financial objectives with concern for social, environment and/or ethical issues. Related terms include ethical investment and sustainable & responsible investment. SRI is a market-driven way to advance sustainable development, social regeneration, CSR and other positive social and environmental aims. Social investors include individuals, businesses, universities and hospitals, pension funds, religious institutions, charities and non-profit organisations.
A bit of history Churches led the way in the early days
Ethical investing has its roots in the religious movements, such as the US Methodist Church, which, in the 1920s, wished to invest in the stock market while avoiding companies involved in gambling and alcohol. The Quakers soon followed – avoiding companies involved in weapons manufacture as well. Churches in many parts of the world have since avoided investment in tobacco, alcohol, gambling and pornography. Apart from the Christian churches, other faiths are investing with ethics in mind. For example, the Amana Growth Fund is based on the Islamic faith.
Social movements of the 1960’s . . .
The modern roots of SRI date back to the politics of the 1960s as civil rights, women’s rights and environmental movements matured. In 1971, the Pax World Fund, based in the US, set up in response to the demand for investments that did not benefit from the Vietnam War. For example, some investors did not want to hold shares in Dow Chemicals, the maker of “Agent
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Orange”, a defoliant that was used to destroy civilian food supplies and also left a string of health problems in Vietnam for years to come. In the 1980s, investors also wanted to avoid South Africa because of apartheid. For example in 1982, Calvert Group, a US investment firm, launched the first mutual fund to take a stand against apartheid in South Africa. Some funds today avoid investing in countries with oppressive regimes, such as Burma. Concept of “sustainable development” now widely accepted
SRI is also referred to as “sustainable and responsible investment”. The concept of “sustainability” has gained increasing credence, based on the belief that maintaining income over time requires that the capital stock is not run down. “Sustainable development” is thus the goal of living within our environmental means and not passing the cost of present activities onto future generations. The word “sustainable” is used more and more because it combines social, ethical and environmental concerns. It should be noted that the UK Social Investment Forum uses the term SRI to also describe financial transactions that invest money in ways that realise repayment with or without additional financial return. However, SRI should not be confused with the term “social investment”, which describes any expenditure of money to build “social capital” or “human capital”. Thus social investment includes donations to charities but not an investment that is tradable or reclaimable. However, readers should bear in mind that many SRI practitioners shorthand SRI to social investment and sustainable investment.
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Social responsibility – A new drumbeat Confluence of events and trends SRI – part of a bigger trend
A confluence of inter-related trends and events over the last few years is giving the concept of social responsibility a big push that will lead to greater awareness and interest in SRI.
Worldwide call for better CG boosts social responsibility CG is an essential part of strengthening the international financial architecture
Firstly, improving CG in emerging markets will help strengthen the international financial architecture. The Asian financial crisis of 1997-1998 highlighted the vulnerability of emerging economies to volatility and financial shocks following a decade of liberalisation in financial markets. The lack of transparency in those markets led to badly priced risk and poor lending decisions. The crisis continues to cast a long shadow on emerging markets and improving CG is now seen as an essential part of strengthening the international financial architecture. The World Bank, Organisation for Economic Co-operation and Development (OECD) and Asian Development Bank (ADB) believe that improved CG will reduce vulnerability of markets to external shocks, and thereby, limiting the damage to the social and economic fabric of communities in developing countries. These bodies are working with governments, regulators and the private sectors for improvements. In Asia, the Singapore and Hong Kong governments are leading the charge to promote CG. India has also made solid strides. The Asian Association for Corporate Governance, a private sector initiative, was set-up in 2000 in Hong Kong to further the case of corporate accountability in Asia.
Vital for emerging markets to access capital
Secondly, promoting CG will help emerging markets to broaden and deepen access to capital. The convergence of markets into a global trading economy, the borderless character of capital and its swift movement around the world, plus instantaneous telecoms, are affecting companies in many ways. One of the effects is that they are competing globally for capital.
CG and social responsibility are tied
As to what constitutes good CG, CLSA’s first CG report, in October 2000, The Tide Out: Who’s Swimming Naked? listed seven characteristics: discipline, transparency, independence, accountability, responsibility, fairness and social responsibility.
“Stakeholders” defined
The concept of social responsibility extends responsibility to a broad church of “stakeholders”. International institutions, such as the World Bank, OECD and ADB accept that “stakeholders” have a role to play in improving CG. For example, the OECD’s “Principles of Corporate Governance” provides that: The corporate governance framework should recognise the rights of stakeholders as established by law and encourage active co-operation between corporations and stakeholders in creating wealth, jobs, and the sustainability of financially sound enterprises.
“Stakeholders” include employees, suppliers, customers, and the community at large. Thus, the emerging global paradigm is that companies and corporate boards while accountable to shareholders are nevertheless responsible for successful relations with all stakeholders.
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CG pays
SRI
In April 2001, CLSA’s, Saints & Sinners: Who’s got religion? report found that the total average US$ return for the 100 largest companies across emerging markets in the past three years has been 127%, while the average for the top CG quartile of these was 267%. CG pays.
“Globalisation” calls attention to social responsibility Governments find it hard to regulate global trade
The debate on globalisation stems from the fear that relatively few multinational corporations are calling the shots in global world trade with governments seemingly becoming less relevant. Governments are indeed finding it harder and harder to regulate business that is increasingly global. Indeed, some times governments are reluctant to pressure businesses because they fear it may affect foreign investment.
Concern about growing disparities between rich and poor countries
While world trade has increased dramatically over the past decade and many developing countries’ GDP has gone up, the disparities between rich and poor countries have in fact widened and the latter’s environments have become even more degraded. The string of protests against globalisation over the past two years – such as the Seattle WTO Ministerial Conference and the World Economic Forum meetings at Davos and Melbourne – called attention to the need to reduce detrimental social and environmental impacts in a global age. The corporate world is called upon to act with responsibility.
Voluntary responsible corporate conduct to counter globalisation’s ill effects Calls for companies to behave responsibly
“Globalisation” has brought real benefits but there is room for improving corporate conduct. Jagdish Bhawati, professor of economics at Columbia University argues: For in doing so, they will accelerate the social good that their economic activities promote, and for which there is now much evidence. Such an assumption of social responsibility is part of the package of institutional and policy changes that we need in order to reinforce the enormous good that economic globalisation is bringing worldwide. – at least to those countries that have accessed it. This rider must be added as it is nonsensical to attack globalisation as a cause of anti-social outcomes when the problem instead is that globalisation has passed some or several countries by – in other words, there is not enough of it.
Voluntary initialives – ISO 14000, SA 8000, AA 1000 and Global Compact
A number of voluntary initiatives to improve corporate conduct have become widely accepted in developed countries and increasingly also emerging markets. The best known are: ISO 14000, a series of environmental management system standards; SA 8000, a set of principles of international human rights norms for the workplace; and The Global Compact, a UN sponsored initiative aimed at “social norming” to improve corporate responsibility. Another interesting development is AccountAbility 1000, or AA 1000, a new initiative to develop consistent professional practices in social and ethical accounting, auditing and reporting. It is being developed and promoted by the Institute of Social and Ethical Accounting, founded in Britain in 1996. (See Box 1, 2, 3).
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Other voluntary initiatives Other well known standards include the Global Reporting Initiative, established in 1997 to design globally applicable guidelines for preparing sustainability reports; and the ILO/UNICEF standards on child labor. The Caux Round Table promotes principled business leadership; the Interfaith Centre on Corporate Responsibility, is a collection of 275 religious institutions that use their investments to promote social change; and the Keidanren Charter for Good Corporate Behaviour, a Japanese organisation promoting CG. Box 1
ISO 14000 series of EMS standards www.iso14000.com Designed to help organisations make environmental gains
The ISO 14000 series is a set of voluntary standards developed in 1996 to assist organisations to achieve environmental gains through the implementation of effective environmental management systems. The series provides guidelines on principles, systems and supportive techniques, environmental auditing, qualification criteria for auditors, environmental labels, life cycle assessment, as well as environmental aspects in product standards.
EMS ISO 14001 is the star standard
ISO 14001, the first in the series, is the star standard for environmental management systems (EMS). Worldwide registrations stand at about 20,000 with 20 times that number reportedly waiting in the wings.
Stringent periodic auditing
The series was developed by the International Organisation for Standardisation (ISO) and has become widely accepted in most industrialised countries. The presence of ISO 14000 certification informs that the companies have environmental goals and targets with management systems to implement them. Certification is a rigorous process. Organisations may also be decertified if they are unable to keep up the standards. In 1998, Ford Motor Company became the first automaker to certify all of its manufacturing facilities worldwide. In 1999, Ford called upon all of its suppliers to certify at least one manufacturing site by the end of 2001, affecting some 5,000 organisations. The requirement also stated that all the suppliers manufacturing sites shipping products to Ford should be certified by July 2003. General Motors followed Ford by asking all of its suppliers to certify by the end of 2002.
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Figure 1
The number of ISO 14001/EMAS certifications/registrations worldwide at end November 2000
5,000
2,500
EMAS
2,181
4,500
ISO 14001 Total: 21,449
2,000
Total EU ISO Certifications 7,909
1,500
Total: 3,154
4,000
1,000
8
1
1
1
0
0
Greece
Iceland
Liechtenstein
149 76 62 64 38 35 32 26 9
Luxembourg
271 200
Portugal
500
Ireland
3,500
2,500
Belgium
Netherlands
Finland
Italy
France
Spain
Norway
UK
Sweden
Denmark
Germany
Austria
0
3,000
Countries with 10 or less ISO 14001 Certfications 2,000
1,500
1,000
500
Peru
10
Mauritius
3
Fiji
Uruguay
10
1
Russia
3
Guatemala
1
Chile
9
Zimbabwe
3
Latvia
1
Lithuania
9
Bahrain
2
Malta
1
Vietnam
9
Honduras
2
Namibia
1 1
Croatia
8
Monaco
2
Nigeria
Jordan
8
Oman
2
Paraguay
1
Venezuela
7
Pakistan
2
Qatar
1
Lebanon
5
Sri Lanka
2
Romania
1
Morocco
5
Syria
2
Saint Lucia
1
Saudi Arabia
5
Yugoslavia
2
Trinidad & Tobago
1
Estonia
4
Zambia
2
Tunisia
1
Puerto Rico
4
Afganistan
1
Ukraine
1
Barbados
3
Dominican Republic
1
Syrian Arab Republic
1
Cyprus
3
Ecuador
1
FYR of Macedonia
1
Iran
Costa Rica
Colombia
Slovenia
Israel
Slovak Republic
UAE
Philippines
Poland
New Zealand
Turkey
Egypt
Indonesia
Hong Kong
Argentina
Czech Republic
Hungary
South Africa
Mexico
Singapore
Brasil
Malaysia
India
Thailand
Korea
Australia
Canada
China
Taiwan
Switzerland
USA
Japan
0
Source: Reinhard Peglau (Federal Environmental Agency, Berlin, Germany)
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Box 2
SA 8000 www.cepaa.org SA 8000 is gaining acceptance as a labour and workplace code
Social Accountability International (SAI) was renamed in 2000, and was formally known as the Council on Economic Priorities Accreditation Agency (CEPAA). It was founded in 1997 to address the growing concern among consumers about labor conditions around the world. Research shows that corporate internal codes of conduct tend to be highly inconsistent and hard to monitor due to unclear definitions and lack of trained auditors. Social Accountability 8000 (SA 8000) was developed as a standard for workplace conditions with a verification process. SA 8000 is based on the principles of international human rights norms as delineated in International Labor Organisation Conventions, the United Nations Convention on the Rights of the Child, and the Universal Declaration of Human Rights. SA 8000 has nine core areas: child labor, forced labor, health and safety, compensation, working hours, discrimination, discipline, free association and collective bargaining, and management systems. As to how it works, SA 8000 is modelled on one of the ISO quality control certification systems developed by the International Organisation for Standardisation for production systems. Auditing techniques include specifying corrective and preventive actions; encouraging continuous improvement; and focusing on management systems and documentation proving these systemsâ&#x20AC;&#x2122; effectiveness. SA 8000 includes three elements essential for social auditing:
o o
Specific performance standards set with minimum requirements;
o
A complaints and appeals mechanism allows individual workers, organisations and other interested parties to bring forward issues of non-compliance at certificated facilities.
Auditors are required to consult with and learn from interested parties, such as NGOs, trade unions and workers; and
A factory that has SA 8000 certification means that the facility has been examined in accordance with SAI auditing procedures and found to conform to the standard. Certified facilities are subject to semi-annual check-up audits. Once certified, a producer is entitled to display the SA 8000 mark and thereby use it as a selling point to customers and shareholders. Facilities may also be decertified if they do not pass the periodic audits. Professional audit companies who want to be able to do SA 8000-certification work have to first be accredited with SAI. It is like a licensing process. SAI evaluates an applicantâ&#x20AC;&#x2122;s capability and the applicant firmâ&#x20AC;&#x2122;s policies, procedures and documentation. See also Appendix 3.
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Box 3
The Global Compact A norm-building attempt www.globalcompact.org A UN-led norm-building exercise to ensure CSR
The Global Compact was formally launched in July 2000 by the UN, calling on companies to embrace nine universal principles in the areas of human rights, labor standards and the environment. It brings together the UN and its agencies, NGOs and other parties to foster participation to build a more inclusive and equitable global marketplace. It aims to contribute to the emergence of “shared values and principles, which give a human face to the global market”. In the words of the UN: Corporate leaders participating in the Global Compact agree that globalisation, which only a few years ago was seen by many as an inevitable and unstoppable economic trend, in fact is highly fragile and may have an uncertain future. Indeed, rising concerns about the effects of globalisation on the developing world – be they related to the concentration of economic power, income inequalities or social disruption – suggest that in its present form, globalisation is not sustainable. The Global Compact was created to help organisations redefine their strategies and courses of action so that all people can share the benefits.
How to sign on
A company wishing to sign up can do so by writing to the UN’s General Secretary expressing support for the Global Compact and commitment to take the following actions:
o
Issue a clear statement of support and to publicly advocate the Global Compact. This may include informing employees, shareholders, customers and suppliers; integrating the compact into corporate development and training programs; incorporating the compact into the company’s mission statement; including these commitments in the company Annual Report and other publications; and to publicise all of the above; and
o
Provide once a year a concrete example of progress made or lesson learned in implementing these principles.
Companies that have already signed on include Nike, Shell, Statoil, France Telecom, ABB, BP, Unilever, Rio Tinto, Siemens, Investor, Allied Zurich, Norsk Hydro, Alcatel, Deutsche Bank, Ericsson, Novartis, as well as emerging-market companies such as the Charoen Pokphand Group, Esquel Group, Tata Iron & Steel Company and Seri Sugar Mills. The UN has appointed Goran Lindahl, the chief executive of ABB, to lead a corporate recruitment effort to line up 1,000 companies worldwide by 2002.
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Push for sustainable development provides continuous reminders about social and environmental responsibility “Sustainable development” has become the national policy of many countries . . .
The UN and its agencies as well as member states have all accepted that the pursuit of economic development must also ensure that the environment is adequately protected. In 1992, at the UN sponsored Earth Summit in Rio de Janeiro, most of the world’s governments committed themselves to sustainable development by pledging to make improvements.
. . . expect constant reminders
It is now also accepted gospel that companies and capital markets play important roles in the pursuit of sustainable development. Every year there are numerous local and international events sponsored by the UN and other international agencies as well as by governments that aim to raise awareness and empower NGOs to be more effective, as well as to bring different stakeholders together. What is certain is that the social responsibility agenda will not move off the media radar screen, providing a constant reminder of its growing importance in global dialogue.
Rise of NGOs stimulates social responsibility debate NGOs are becoming sophisticated lobbyists
The rise of civil society has created new market forces affecting business. There are now NGOs representing just about every concern one can think of locally and internationally. Companies have to take what NGOs say about them into account when developing their business strategies. Well-funded international NGOs – such as the International Confederation of Free Trade Unions (ICFTU), the American Federation of Labor - Congress of Industrial Organizations (AFL-CIO), human rights groups such as Amnesty International and Human Rights Watch, and green groups like Greenpeace, Friends of the Earth, and The Nature Conservancy – can be extremely influential in affecting stakeholder choice. NGOs are providing stakeholders with plenty of information about corporate environmental performance, labor practices and community-involvement records.
Business leaders are drawn to promote CSR
Furthermore, improving social responsibility is drawing interest and support from many of the best and brightest who want to make the world a better place. Some leading business people have formed their own NGOs – the World Business Council for Sustainable Development, the European Business Ethics Network, SustainAbility, the Progressio Foundation, Transalantic Business Dialogue and The Prince of Wales Business Leadership Forum, just to name a few. While they will add a touch of realism to the debate on balancing social responsibility and the bottom line, the subject is only going to be discussed more intensely.
Choosy consumers cannot be ignored Consumers also drive corporate strategies with new demands
Consumers in Europe and Japan have become more and more interested in organic diets and are rejecting genetically modified food. Younger consumers also demand products that are not tested on animals. Worldwide, there is an increasing desire for products and services that are less damaging on the natural environmental.
SRI is the investment side of the consumer movement
In brand building, companies want to ensure that they are seen as socially responsible because it affects profits. A study by Environics, the Conference Board, and The Prince of Wales Business Leadership Forum surveyed 25,000
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respondents in 1999 and 17% of the respondents said they had avoided products from companies they perceived as not being socially responsible. SRI is the investment side of the ethical consumer movement in developed countries, which will spread to developing countries.
Expansion of CSR programmes Some of the best companies are expanding their CSR programmes
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As a response to consumer and even shareholder activism, companies are adopting or expanding their corporate social responsibility programs to show that they are good global corporate citizens. Companies are releasing more detailed information about how they do business and are inviting external monitors to produce independent reports. Good examples include oil giants Shell and BP, as well as Reebok and Nike. Both sports apparel companies have teamed up with NGOs to improve factory work conditions.
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Case Study – Nike Truth Tour – Nike’s story www.nikebiz.com Sweatshop accusations . . . denial, introspection, acceptance and action
Nike was first accused in 1992 of selling products made in sweatshops in poor countries. Repeated accusations hurt the company’s reputation. After a period of denial, came a time of introspection, leading Nike to develop an impressive corporate social responsibility program. Yet, it is still hounded by activists, whose 13-day Truth Tour last summer continued to knock their favourite corporate villain. Most recently, Nike’s reputation suffered another blow after publication of a report on conditions in its Indonesian factories. Just how socially responsible is Nike? Balancing social responsibility and profitability CSR issues are complex. Nike’s VP for Corporate Responsibility, Maria Eitel, makes that clear: Whatever you want to call it; corporate ethics, sustainability, social responsibility, ‘people, planet, profit’, the triple bottom line, ‘good company’ versus ‘bad company’. It is all about how you handle dilemmas as a company. How do you produce the best products under the best factory conditions and remain profitable? How do you balance the need to compete with companies that want to win market share from you and at the same time invest 3% of your pretax profits in community giving? How do you develop environmentally sustainable products that still provide the performance consumers want? How do you balance investments of time and money in corporate responsibility initiatives with bottom-line demands?
There are more than 700 contracted factories in more than 50 countries with over 500,000 workers making Nike products. Monitoring is by no means easy but Nike believes it has the most extensive system in the industry. Nike’s stated goals are: To see things through the eyes of the workers; make sure workers are aware of their rights and our standards; do business with factories that respect worker rights and our standards; provide managers with clear compliance guidelines and effective tools; monitor effectively; correct compliance issues and invest in sustainable solutions; show respect for everyone and be transparent about what we find and what challenge we face.
Apart from internal monitoring, Nike also uses external experts to monitor a variety of issues, such as health and safety issues in the workplace. In 1999, Nike listed all the factories which makes college licensed apparel on its website and in March 2000, it posted an unedited 32-page report that judged its monitoring process and factory conditions. External assessment by an NGO
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Since 1999, Nike also works with the Global Alliance for Workers and Communities, a non-governmental organisation, involving a number of other global companies, public institutions and NGOs, to assess workers’ views on workplace conditions and aspiration issues (www.theglobalalliance.org). The majority of factories in Vietnam and a number of factories in China and Indonesia producing Nike goods are participants. Dusty Kidd, another VP for Corporate Responsibility, emphasised that: “Monitoring Nike is a work in progress, and always will be.”
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Environmental policy
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Proactive environmental protection On the environmental front, Nike now has an in-house environmental action team and a clear corporate mission and policy: Through the adoption of sustainable business practices Nike is committed to securing intergenerational quality of life, restoring the environment and increasing value for our customers, shareholders and business partners.
How is this being put into practice? Nike’s stated goal is to reduce product and manufacturing impact on ecosystems by integrating sustainability into design and manufacturing of their products. Nike makes it clear that it wants to reduce the environmental impact created by consumption (i.e. making and selling more products) by reducing material intensity but at the same time provide financial growth for the company. Its 2020 goals include: 1. Eliminate the concept of waste in product design, use of materials, energy, and any resource that cannot be readily recycled, renewed or reabsorbed back into nature; 2. Eliminate all substances that are known or suspected to be harmful to human health or the health of biological or ecological systems; 3. Closing the loop and taking full responsibility for its products at all stage of product and process lifecycle, including the end of a product’s useful life when consumer are likely to dispose of it; 4. Developing financial structures that promote greater product stewardship in design, engineering and manufacturing. Some quantifiable improvements
Corporate giving
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Nike’s achievements to date include: o Eliminated more than 1.6 million gallons of solvent each year from its production process;
o
Reduced solid waste per pair of footwear by 29% from factories in China and Indonesia;
o
Recycling more than 90% of rubber waste from its 4 contracted factories in Qingdao, China; and re-using more than 40% of rubber waste from its 17 contracted factories in China;
o o
Reduced material usage for Nike boxes by 10%;
o
Promoted an alternative commuting program at its Oregon HQ reducing its 1992 drive alone rate from 98% to 84% by 1999 using carpool, transit, bike, walk and other means;
o
Tracked and reduced CO2 emissions from its corporate travel by partnering with Delta Air Lines whereby both donate a portion of the ticket price to off-set carbon dioxide emissions by others. An example is donation to Portland schools to help them change its fuel source from oil to cleaner natural gas by installing high efficiency boilers.
Phasing in organic cotton – 90% of shirts produced in the US for Nike have 3% organic cotton content;
Community investments and corporate giving Nike provides micro-loan programs in Vietnam, Indonesia and Thailand. It also sponsors volunteer programs for community services around the world. Nike Taiwan, for example, helped with earthquake relief work when earthquake rocked Taiwan a year ago. Nike gives 3% of pre-tax income to community projects, which puts it in the top 5% of corporate giving programs worldwide.
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Hard to solve systemic problems in global subcontracted manufacturing
Assessing workers and monitoring contractors As part of its effort to develop as comprehensive and accurate a picture of it workplaces as possible Nike relies on a system of internal and external monitors, supplemented by a worker assessment process. For example, in February 2001, the Global Alliance surveyed 4,000 workers out of 54,000 in nine Nike-contracted factories in Indonesia and found, among other things, that 30% of the workers said they experienced verbal abuse, 2.5% received unwanted sexual touching and 8% unwelcome sexual comments. Also, 3% said they experienced physical abuse at the hands of superiors or managers. Global Alliance felt that the report confirmed what is already generally known – that there are systemic problems in global manufacturing that extend well beyond Nike’s factories. So, this is not just a Nike problem.
Sign of leadership
Despite Nike’s greater openness in recent years, it has continued to attract criticism. Whilst it is clear that Nike’s own international and external compliance programs missed many of the factory floor problems, Nike acknowledged them and came up with a plan to address them. Nike is also willing to continue to report publicly through the Global Alliance on the progress in addressing the problems. The Global Alliance’s executive director, Kevin Quigley said: “We think this is leadership.”
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SRI
Case Study 2 Royal Dutch/Shell Group of Companies www.shell.com A substantial worldwide business
Shell explores for, produces, transports and delivers energy. It is involved in exploration and production of oil and gas, transportation and delivery of gas and power to customers, manufacture and marketing of oil products, chemicals, and it is also now in the business of renewable energy. It operates in more than 135 countries and employs some 90,000 people worldwide. Every day it serves some 20 million customers and has 46,000 gas stations all over the world.
Suffered severe image problems in 1995 . . .
Shell’s reputation was dented in 1995 by public protest and customer boycotts over its operations in Nigeria, where serious human rights violations occurred, and its proposed disposal of the Brent Spar production platform. That experience led to a period of soul searching, which resulted in a revised set of corporate Statement of General Business Principles that acknowledges stakeholder responsibility not only to shareholders, customers and business partners but also to employees and society at large. Furthermore, Shell committed itself to increased transparency, and to develop and integrate its corporate reporting to show how it would fulfill its responsibilities.
. . . leading to soul-searching
Sustainable development is now a core business principle
The Shell Report 2000 – How do we stand? People, Planet & Profits shows how far Shell has gone in a mere few years. Shell has adopted sustainable development as a core corporate objective. Indeed, since 1998, it has produced a whole variety of corporate responsibility reports. Shell’s reporting now extends beyond its business and health, safety and environmental (HSE) performance to ethnic and social issues. These reports are vital to help stakeholders track progress in all these aspects.
Even address human rights issues
For example, in the area of human rights, Shell acknowledges that: “Human rights are the universal rights which every human being should be entitled to enjoy and to have protected”. Most multinationals choose to stay politically neutral, but companies that play a major economic role in a country are coming under increasing pressure from human rights groups and others to speak out against human rights abuses or to divest, particularly when complaints to governments fail.” The Shell Report 2000 makes clear that a key business principle is to conduct business in a way that is socially responsible, including expressing support for fundamental human rights.
Committment to transparency – warts and all
The report also discussed its global staff survey, which revealed that nearly two-thirds of Shell people often felt under intense pressure. Management are committed “to create a workplace where people feel respected”. Shell described its safety record as “a serious concern” and acknowledged that the level of fatalities was “unacceptable”, with “most fatal incidents continue to occur on the road in developing and emerging countries.” It pledged to do more to embed a culture of safety throughout the Shell network. In the area of the environment, whilst 80% of Shell people believed the company was acting responsibly in the communities they operated in, management recognized that its performance has been mixed. Our greenhouse gas emissions were up slightly although Shell is on target to meet reduction target in 2002 and that oil spills had been halved. Shell reported that 90% of its major installations have been externally certified to international
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Section 2: Social responsibility
SRI
environmental standards and acknowledged that: “The challenge is now to make sure that they deliver the desired performance improvements”. In tracking Shell’s progress towards sustainability in the years to come, assessment will have to move beyond the current measuring, analyzing and reporting efforts to how this giant corporation restructures its business practices to meet new social and environmental expectations and standards. It will have to consider how to integrate sustainable development into product production, delivery and development throughout its own as well as its suppliers and subcontractors’ networks in developed and well as developing countries.
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Section 3: How does SRI work?
SRI
How does SRI work? Active social investing by SRI funds
SRI combines investors’ financial objectives with their commitment to ethical, social and environmental concerns. In a practical sense, SRI can be grouped into three main categories – social screening and analysis, shareholder advocacy (plus its derivative, mission-based investing) and community investing. Socially responsible investors are increasingly using both screening and shareholder advocacy to push for better corporate social responsibility. According to the US Social Investment Forum’s 1999 Report on SRI Trends in the United States published in November 1999, the fastest growing component of SRI is the growth of portfolio using both social screening and shareholder advocacy. Assets in portfolios using both strategies grew 215% from US$84 billion in 1997 to US$265 billion in 1999.
Social screening and analysis Screen for financial soundness followed by social criteria
This is the practice of including or excluding publicly traded stocks and shares from investment portfolios or mutual funds based on social and/or environmental criteria. A typical SRI fund is designed to achieve a defined investment goal through the use of traditional investment processes, and in addition, by investing in enterprises that the fund managers believe make a significant contribution to society through their products and services and the way they conduct their business. Thus, potential investments are first screened for their financial soundness and, after that is complete, the investments are evaluated according to the particular fund’s social and/or environmental criteria.
Positive and negative social screens
Social screening is usually divided into “positive” and “negative” screens. Evaluation may include considering such facts as the effect of a company’s products and services on the environment, whether the company has good employee relations and fosters a commitment to human goals such as creativity. The Social Investment Forum’s 1999 report shows that social investors share a broad common ground in their choice of portfolio screens. The most common are: tobacco (96%), alcohol (83%), weapons (81%) and the environment (79%). Other screens include human rights (43%), labor issues (38%), birth control/abortion (23%), and animal welfare (15%). An increasing number of institutional investors – from state pension plans to hospitals and universities – are excluding tobacco stocks. More employers are offering SRI options as part of retirement plans.
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SRI
Figure 2
Negative criteria (to avoid) Alcohol
Consumed to excess, alcohol may result in violence, serious illness and accidents.
Animal testing
Animal testing for cosmetic products although banned in the UK still exists in many countries. Some consumers view all animal testing as unacceptable, whilst others may be less concerned with animal testing if it is for pharmaceutical purposes.
Arms
This includes the supply of goods and services, including weapons to the military and export of arms.
Gambling
Gambling can result in addiction and people are increasingly concerned about the adverse impact this is having, especially on the young.
Greenhouse gases Health & safety breached
Greenhouse gas emissions such as carbon dixoide are contributing to global warming. Investors can avoid those companies that have been successfully prosecuted.
Human rights abuses Includes operations in countries with regimes that violate the political and civil rights of their people. Intensive farming and meat sale
Vegetarians who gave up meat for ethical rather than medical reasons may prefer to avoid investing in groups involved in meat production. Meat eaters too may have concerns as to the treatment of animals used in food production.
Nuclear power
This is concerned with the damaging effects of radioactive waste, nuclear weapons, nuclear reprocessing and radioactive discharges.
Ozone depletion
Although the manufacture of many ozone destroying chemicals have been banned, their use is still permitted while stocks last.
Pesticides
Excessive pesticide use can lead to damage to the food chain, animal and human immune systems and injuries and deaths among farm workers. Some chemicals are also ozone-depleting.
Pollution convictions A small number of convictions are carried out each year against companies, due for example to a serious pollution incident. Pornorgraphy and adult films
Pornography is often objected to on the grounds that it may corrupt, deprave and contribute to sexual violence and sex discrimination.
Roads
The construction of new roads will contribute to the number of cars on the road, cause levels of pollution to rise and destroy countryside.
Third World concerns This includes Third World debt, codes of conduct covering suppliers and aggressive marketing compaigns causing customers to buy unnecessary or harmful products, i.e. tobacco, breast milk substitutes. Tobacco
Smoking is the largest cause of preventable death, causing over 100,000 deaths every year.
Tropical rainforest destruction
Deforestation for agriculture, development, commercial logging etc. has damaging effects on the environment and threatens the survival of certain wildlife.
Source: Adapted from â&#x20AC;&#x2DC;Choosing an ethical fundâ&#x20AC;&#x2122;, published by The Ethical Investment Research Services Figure 3
Positive criteria (to invest) Water pollution improvement
Often caused by industrial discharges â&#x20AC;&#x201C; water pollution has both environmental and economic impacts.
Community involvement
Companies donating money to worthy causes and encouraging a contribution to the community in which they operate.
Disclosure
Creating better information on corporate policy and practice and a willingness to be open about company policies.
Environmental initiatives
Some investors may prefer to invest in companies demonstrating commitment and achievement in cleaning up their activities or taking a more proactive approach to reducing their impact on the environment.
Equal opportunities
Companies that have improved their equal opportunity records, i.e. by developing a system to monitor effectiveness of equal opportunity policies.
Continued next page
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Section 3: How does SRI work?
SRI
Figure 3
Positive criteria (to invest) (continued) Positive products and services
Different activities which can be seen as providing basic necessities and other products and services which help in solving problems and making the world a safer place – may include: ❏ Environmental technology including products for recycling, wind power generators and pollution abatement technology ❏ Waste disposal companies ❏ Public transport and bicycles, including provision of bus services and maintenance of railway tracks ❏ Safety and protection, for example alarm systems for elderly people living alone, fire alarms, life jackets and protective clothing ❏ Healthcare, including medicines, hearing aids and spectacles ❏ Housing, food and clothing ❏ Retail of water, electricity and gas for residential users ❏ Training and education, including supply of educational materials and occupational and language training courses ❏ Publishing and the press
Source: Adapted from ‘Choosing an ethnical fund’, published by The Ethical Investment Research Services
Shareholder advocacy Engaging companies in dialogue and using proxy and resolution to affect change are effective
An example from Calvert Group
Advocacy can take many forms to positively influence corporate behaviour. These include:
o
Engaging in shareholder dialogue with companies through phone calls, letters, and in-person meetings with management;
o
Proxy voting – shareholders have the opportunity to express views at annual stockholder meetings; and
o
Shareholder resolutions – shareholders have the opportunity to propose resolutions on a variety of issues. These may include plans to reduce pollution, adopting labor and human rights guidelines, reporting on a company’s compliance with labor standards, reporting on global climate change, linking executive pay to social criteria, reporting on equal opportunity practices, committing to diversity on the board of directors, labeling or phasing out products and reviewing and reporting on global standards.
For example, the Calvert Group filed 10 resolutions in 2000 and provides a useful example of shareholder advocacy. The Group says of itself: Calvert is an active shareholder of companies in which we invest. We talk with management to learn about their business practices and challenges. We encourage positive social change within companies because we believe that today’s social and environmental issues will become tomorrow’s financial problems. Calvert’s analysts work hard to reach an agreement with company management on a mutually agreeable process or benchmark for improvement. In cases in which our dialogue with management is not successful, we may elect to file a shareholder resolution independently or with other concerned investors. The resolutions . . . are included in the annual proxy ballot, which is voted up or down by shareholders at the company’s annual meeting. When Calvert files a shareholder resolution, we seek to work constructively with management, even as we advocate for improvement. Many of the resolutions we file with companies are ultimately withdrawn, due to a negotiated settlement. Company managers are often more receptive to Calvert’s concerns after we’ve filed a resolution.
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SRI
According to the US Social Investment Forum 1999 report, between 1997 and 1999 the amount of money controlled by investors who are involved in shareholder advocacy rose from US$736 billion to US$922 billion, an increase of 25%. In 1999, shareholder activists, including religious shareholders, foundations, mutual funds, pension funds, social investment managers and others filed approximately 220 resolutions with more than 150 major US companies. The table below shows the major areas covered by their resolutions: Figure 4
Categories of shareholder resolution, 1999 USA Shareholder issues Environment
Number of resolutions 54
Global corporate accountability
41
quality
38
Corporate governance/executive compensation
30
Health and tobacco
31
Global finance
14
Militarism and violence
12
Source: US Social Investment Forum
Another example from Morley Fund Management
A recent example of SRI advocacy is that of Morley Fund Management’s effort to push for better environmental accountability. In April this year, Morley will in future vote against the annual accounts of the top 100 UK companies unless they include an environmental report. Morley manages GBP100 billion of assets, equivalent to 2.5% of the UK stock market.
Mission-based investing Funds with a specific mission
This form of investor advocacy incorporates an institutional investor’s mission in its investment decision-making. It is implemented through the use of techniques including social screening, shareholder advocacy, community investing as well as venture capital.
Community investing Support for particular causes
Also referred to as cause-based or socially directed investing, community investing is the practice by investors to support a particular cause or activity by financing it by way of investment. This category is relative small among SRI funds. Socially-directed investors may seek a financial return at market rates or take a lower or even zero financial return in order to achieve a particular “social return” from their investment. Unlike making a donation, the investors require that, at a minimum, the original value of the investment can be returned by either repayment or trading. This kind of SRI provides capital to community based development banks, funds, credit unions and venture capital funds. This kind of SRI grew by 35% between 1997 and 1999 in the US and was estimated to be in the region of US$5.4 billion.
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SRI
Section 3: How does SRI work?
Figure 5
Growth of SRI Investments 2,500
($ Billions)
2,159
2,000 1,497 1,500
1,185 922
1,000 500 0
529
736
695
529 265
162
Screening¹
N/A 84 Shareholder¹ 1995
1997
Both¹
4
4 5.4
Community
Total
1999
¹“Screening” and “Shareholder” both include $84 billion of assets in 1997, and $265 billion in 1999, in portfolios that both screen and conduct shareholder advocacy. In 1995, any portfolios involved in “Both” screening and shareholder advocacy assets are included in “Screening”. The calculation for total is: “Screening” + “Shareholder” + “Community” -“Both”. Source: CLSA Emerging Markets
Micro-credit is a form of SRI community investing
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In Asia, the best-known example of community investment is the development of micro-credit, pioneered by the Grameen Bank of Bangladesh, which by November 2000, had lent US$3.2 billion to two million borrowers – all classified as poor, 90% of whom were women – with a repayment rate of 98%. This kind of finance is important because it acts locally and draws on strengths of individuals and communities, inculcating responsibility and giving hope.
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Section 3: How does SRI work?
SRI
The Calvert Group From Alya Z. Kayal, Senior Analyst, International/Human Rights
How does Calvert Group Ltd. conduct SRI? Aware investors are growing in numbers
In recent years, more and more people have become discerning consumers, recognising that the way they spend money has a real impact on the world. They are looking at how companies they do business with treat their employees, communities, and the environment.
Calvert’s investment philosophy
Calvert is among several social investment companies in the US. It sponsors the nation’s largest family of socially screened mutual funds and manages approximately US$7.0 billion in assets in 27 screened and non-screened portfolios for over 220,000 shareholders. At the heart of Calvert’s success is a clear and compelling investment philosophy, which recognises that today’s social and economic issues have a way of becoming tomorrow’s economic problems. So, investing in companies that are committed to meeting the challenges of the future with an expanded view of corporate responsibility is more than just a matter of “doing the right thing” - it also makes good business sense. In general, the practice of SRI is conducted in the following manner:
Financial analysis
It begins with a financial analysis The first step in Calvert’s SRI investment process is to identify potential investments. The portfolio managers subject companies to a rigorous in-depth financial analysis. These managers determine whether companies offer the potential for attractive returns and matches Calvert’s overall investment criteria.
Social analysis
The critical step: Social analysis Once portfolio managers have identified suitable investment candidates, research analysts conduct the social research. For example, at Calvert, the in-house 11-member Social Research Department includes experts in social investment who conduct a rigorous analysis of each company’s societal impact. Drawing upon information from a wide variety of sources, including public records, government regulatory agencies, advocacy organisations, and the company’s own management, the department analyses the company’s performance in six broad areas:
o o o o o o Rigorous analysis takes into account complexities of international investing . . .
May 2001
Environment Workplace practices International operations and human rights Product safety and impact - including manufacturing of weapons Community relations Indigenous peoples’ rights
The purpose of this research is to complement the financial analysis of the company in order to determine what the company does and what is stands for. We take a hard look at management’s commitment along with its corporate responsibility record. How does the company treat its employees or the community in which it operates? How diverse is its Board of Directors or senior management? How safe are its products? Does the company employ
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Section 3: How does SRI work?
. . . such as cultural differences and environmental compliances
SRI
child labor? What is the company’s record in respecting basic labor and human rights? We seek to answer these questions, taking into account the complexities that international investing brings with it - such as cultural differences, and significant disparities in environmental compliance and working conditions. Once the research on a particular security is complete, we analyse the company’s social performance. 1. Evaluation of company performance - Whether we are looking at data from the Environmental Protection Agency or from the Occupational Safety and Health, we evaluate the company’s present and historical performance in and of itself. 2. Peer group analysis and country context - We look at how the company compares with other companies in its industry (and specifically to its peer group within its industry) to assess a company’s overall footprint. This could include looking at international standards. 3. We recognise that there are no perfect companies. However if the company does not meet the social criteria, we won’t invest in it. In some cases, if we feel a company has room for improvement but still satisfied our criteria, we may invest in it and raise our concerns with management through shareholder advocacy. We continue to monitor the company’s social performance.
Active engagement with companies
Making a difference: Shareholder advocacy As active shareholders, we talk with management and encourage positive social behavior by actively encouraging them toward “best practices” standards of corporate social responsibility. As a mutual fund company, Calvert has the right and responsibility to represent its shareholders when any of the companies in which it invests in votes on corporate issues, such as a change in Board of Directors or increasing executive compensation. We contact management to learn more about the company’s programs and its track record and vision for the future. Calvert often evaluates policies and programs and advocates for best practices, such as increased public reporting. In most cases, this dialogue is open and constructive. We work hard to reach an agreement with management on a mutually agreeable process or benchmark for improvement in a particular area of concern. If the dialogue is not successful, we may elect to file a shareholder resolution independently or with other concerned investors. These resolutions, formal requests that management addresses an issue of concern, are for the annual proxy ballot at the company annual general meeting. Positive changes in corporate governance and a strong management commitment to company disclosure are often the result of formal and informal shareholder advocacy. If we reach an agreement, we may withdraw the resolution. In 2000, Calvert was the lead filer in 10 resolutions.
Higher risk social investing
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Other strategies Other SRI strategies used at Calvert include the Calvert Special Equities Program, a unique program for a mutual fund company, invests in higher risk socially responsible enterprises that provide market-based solutions to complex social, environmental and health problems. Also included is High Social Impact Investing, an innovative program of investing up to one percent
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Section 3: How does SRI work?
SRI
of assets in â&#x20AC;&#x153;high social impactâ&#x20AC;? investment opportunities to proactively direct investments to distressed local communities where access to capital has traditionally been limited. These investments provide somewhat less than market rates of return, but can make a tremendous difference in the lives of thousands of people struggling to break the cycle of poverty.
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SRI
Section 4: Growth of SRI
Growth of SRI Just how fast are SRI funds growing globally? SRI funds growing rapidly worldwide
Estabished SRI funds already active in Asia-Pacific
Whilst SRI represents only a small portion of the total funds under management worldwide, it is growing rapidly. According to SRI research bodies, Social Investment Forum and Hong Kong-based ASRIA:
o
In the USA, social investment grew from US$639 billion in 1995 to US$1.185 trillion in 1997 to US$2.16 trillion in 1999. One out of every US$8 under professional management is part of a SRI portfolio. SRI unit trusts and mutual funds now equal 13% of all managed asset funds.
o
In Canada, SRI funds are almost US$50 billion, with SRI mutual funds having grown by 75% since June 1998. General mutual funds on the other hand have grown by just 30%.
o
In Europe, there are now 220 SRI funds with almost GBP60 billion under management and over 50 SRI funds. In the UK, currently about GBP3.3 billion has been invested in retail SRI funds and the amount is expected to hit GBP10 billion in less than three years. In Germany, SRI funds have trebled from GBP500 million to GBP1.5 billion in the last year.
o
In Asia-Pacific, SRI has grown rapidly in Japan and Australia in the last two years. In Japan, seven funds have launched recently, attracting more than US$1.1 billion in the last 20 months alone.
o
In Australia, the industry has been in existence longer and there are currently seven managers offering SRI funds. Yet, only A$1 billion is invested. However, this is likely to change rapidly. New entrants such as AMP and Rothschild are raising the stakes in a market with high levels of interest for better SRI options.
o
In Singapore, a small fund, the UOB Unifem Fund, devoted to support fair employment practices for women was launched last year.
It should be noted that many of the well-established international SRI funds are active in the Asia-Pacific region and interested to push for better corporate social responsibility and look for Asian companies to invest in. Figure 6
SRI in Asia 1,200
(US$m) Australia and NZ o Australian Ethical Investments, Hunter Hall, Tower, Westpac, BBL, Challenger and BNP Paribas Japan o NikkoAM, Dalchl LifeAM, Yasuda, UBS and Sanwa Singapore o Henderson Investors and UOB
1,000 800 600 400 200 0
Australia & NZ Japan Church and community based funds
Listed funds
Source: CLSA Emerging Markets
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Section 4: Growth of SRI
SRI
Indices springing up Pioneer – Domini, Citizen’s and Calvert Indices
The pioneer Domini 400 Social Index (DSI) was created in 1990 to provide a market-cap-weighted common US stock index modelled on the S&P 500. It monitors the financial performance of 400 companies that pass multiple, broad based, social screens. The 400 are made up of companies (approximately 250 are also S&P listed) with positive records in community, equal opportunity, employee relations, environment, and product safety and not involved in alcohol, tobacco, gambling, military contracting, and/or nuclear power. The Citizen’s Index (CI), created in 1994, is a market-weighted portfolio of common stocks representing ownership in 300 of the large capitalised US companies that passed a series of financial, social and environmental screens. Two hundred of them are part of the S&P 500. The Calvert Social Index (CSI) is another benchmark for measuring the performance of large, US-based socially responsible companies. It takes as its starting point the 1,000 largest companies in the US, representing stocks listed on the NYSE and NASDAQ-AMEX and ranks them in descending order based on their three-month average market capitalisation. The CSI is reconstituted once a year in September based on an updated list of the 1,000 companies at the end of May. As of March 31, 2001, there were 613 companies in the index. The Calvert Group, which created the CSI, also publishes social profiles of each company on its website.
Dow Jones & FTSE Dow Jones Sustainibility Group Index launched in 1999
The arrival of the Dow Jones Sustainability Group Index (DJSGI) in September 1999 – the world’s first global sustainability index - indicates the recognition that corporate sustainability has become an accepted business approach, which creates long-term shareholder value by embracing opportunities and managing risks arising from economic, social and environmental developments. The DJSGI is a partnership between Dow Jones, and Swiss-based SAM Sustainability Group, a pioneer in sustainability investing. The selection process is based on SAM’s rating, with the calculation and dissemination of the data by Dow Jones. The DJSGI consist of more than 200 companies representing the top 10% of the leading sustainability companies in 64 industry groups in 36 countries. At the end of August 2000, the market cap of the DJSGI exceeded US$5 trillion. The DJSGI has one global index, three regional indices – covering North America, Europe and the Asia-Pacific – and one country index covering the US. Each of these has four additional specialised indices that exclude alcohol, gambling, tobacco and all three of them. Bloomberg (W1SGI), Reuters (W1SGI/A1SGI), publishes the real time calculations of the indices.
FTSE4Good Indices launched in 2001
May 2001
In January 2001, the FTSE launched the FTSE4Good indices that will kick off in June this year. This initiative is done in conjunction with UNICEF, the UN’s Children’s Fund. UNICEF will receive a 40% share of the fees generated by the indices. The indices cover four regions – UK, Europe, the US and the whole world. The FTSE4Good indices will be designed to include companies with credible records on the environment, human rights, and social issues. Initial research by FTSE International shows that over 50% of the constituents of each region may therefore not be eligible for inclusion. To tie in with the launch, Close Fund Management will be offering a new fund that will track the index.
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Section 4: Growth of SRI
SRI
Good research and active management Solid research and active management have helped SRI funds to grow
Typically, every fund has four components: the Fund Manager, the criteria, internal and external research, and an independent committee. The Fund Manager is the institution making the decisions about asset allocation and what to invest in. The Criteria are the investment guidelines and restrictions the Fund Manager must follow. Fund Managers use both internal departments and external agencies to conduct research to help them make investment decisions. The Committee is an independent appointed group of people who meets periodically to ensure that the fund is operating within the set criteria. Thorough SRI involves a great deal of research into companies in order to understand what they do and how they do it beyond the traditional financial investigations. A useful example is Kinder, Lydenberg and Domini (KLD), a provider of SRI research for institutional investors. It provides performance benchmarks, corporate accountability research, and consulting services analogous to those provided by financial research service firms. KLD develops performance benchmarks for socially screened portfolios. It was responsible for developing and launching the DSI in 1990, a first attempt to generate data on the effects of social screening on financial performance.
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SRI
Section 5: SRI performance record
SRI performance record No systemic reason for SRI funds to underperform
Does it pay to be a social investor? Like everything in investment, the answer is not black or white. A study by the Ethical Investment Research Service in 1999 found that annualised returns on SRI funds were a shade below those of traditional funds. However, they enjoyed lower volatility and greater consistency of returns than funds not socially screened. Another study of 65 European shares by the Swiss bank Sarasin showed that returns from SRI were at least comparable with those for more traditional equity investment. Figure 7
Domini Social Index and Citizens Index vs S&P 500 (May 1990-May 1999) $6.00
$6.00
$5.00
$5.00
$4.00
$4.00
$3.00
$3.00
$2.00
$2.00
$1.00
$1.00
$0.00
5/90
5/91
5/92
5/93
DSI 400
5/94
5/95
5/96
5/97
CitizenÂ&#x2019;s Index
5/98
$0.00 5/99
S&P 500
Source: CLSA Emerging Markets Figure 8
Sustainability Performance Trends (DJSGI World vs DJGI World) 390 340
390 DJSGI / DJGI (euro) Correction: 0.9743 DJSGI Volatility: 16.24%
Tracking Error: 2.41% DJGI Volatility: 15.66%
290
240.6%
174.1%
340 290
240
240
190
190
140
140
90 Dec 93
Dec 94
Dec 95
Dec 96
DJSGI World
Dec 97
Dec 98
Dec 99
90
DJGI World
Source: CLSA Emerging Markets
SRI success depends on making careful choices, just like traditional funds
May 2001
Whether one can invest responsibly and still get a good return depends on the investments one chooses. Not all SRI funds are the same â&#x20AC;&#x201C; they have different criteria, some more restrictive than others. It is true that funds with very strict criteria may indeed be more limiting, for example, where whole industry sectors or a substantial chunk of them are eliminated. Many
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SRI
Section 5: SRI performance record
SRI funds have sufficiently broad criteria to enable the inclusion of a large number of companies. Furthermore, the growth in the use of shareholder advocacy as a tool to improve corporate social responsibility means those SRI funds can continue to invest in a larger portfolio. Furthermore, some community-based investments specifically offer lower rates of financial return in order to allow the delivery of a higher social return, whilst others seek competitive returns. The mainstream investment community had downplayed SRI in the past on the grounds that the constraints placed on funds by social and environmental criteria left fund managers with limited flexibility to manoeuvre. For this reason, SRI funds were thought to underperform the market. This belief was reinforced by the Parnassus Fund showing a â&#x20AC;&#x201C;2.91% return in 1995 when the S&P 500 returned over 30%. It should be noted, however, that the Parnassus Fund has remained competitive over the years. The winding-up of the Progressive Environmental Fund in March 1996 due to low assets and poor performance was another blow to SRI. But those doubtful days appear to be over. In general, both empirical and academic studies show that there is no systemic reason for SRI funds to underperform. The DSI was created so that over time, it could be shown that the application of social and environmental criteria does not necessarily result in worse financial performance. The Holden Meechan survey last year showed that SRI funds, both in the UK and globally, did well. Funds surveyed that have had strong performance records are shown below. Figure 9
UK (invest in UK companies only) 5 years to end Sep 2000 250
(% growth) 195.84
200 131.66
150
125.11 99.83
90.73
100 50 0
Scottish Family United Windows Charities Ethical Environmental
Sovereign Ethical
Average all ethical funds
Average all funds
Source: CLSA Emerging Markets
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Section 5: SRI performance record
Figure 10
UK (invest in UK companies only) 5 years to end Sep 2000 (% growth)
250 200
133.76
135.02 150
99.05
92.31
81.43
100 50 0
Jupiter Ecology
Equitable Ethical
Henderson Ethical
Average all ethical funds
Average all funds
Source: CLSA Emerging Markets Figure 11
UK (invest in UK companies only) 5 years to end Dec 2000 250
(% growth) 171.31
200 150 100
106.57
92.17
78.98
82.19
50 0
Unit Trust Average: All
Unit Trust Average: UK All
Family Charities Ethical
Scottish Widows
Sovereign Ethical
Source: CLSA Emerging Markets Figure 12
Global (invest in UK and overseas) 5 years to end Dec 2000 250
(% growth)
200
100
114.41
109.45
150 71.73
80.56
62.17
50 0
Unit Trust Unit Trust Average: All Average: Global Ethical Funds â&#x20AC;&#x201C; Growth Global
Eqauitable Ethical
Henderson Ethical A
Jupiter Ecology
Source: CLSA Emerging Markets
May 2001
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Section 5: SRI performance record
Last year was tough for all investors but there were star SRI performers too
However, with recent volatility in stocks, many traditional and SRI funds have lost in value. In the six-months ended 31 December 2000, the S&P 500 lost 8.72% and 9.10% for the year. 2000 was a very bad year for stock market and mutual fund shareholders. Many SRI funds also suffered. For example, the Citizens Fund’s Core Growth Fund lost 20.07% in value in the six-months ended 31 December 2000. The usually steady Friends Provident Stewardship slipped 5.3% during 2000. Even in a bad year, there were stars. For example, Jupiter Funds did well with its Jupiter Ecology Fund earning a 13% return. Figure 13
Total returns (as of 31 March 01) Month
Last quarter
YTD
One year
Three year¹
Five year¹
Ten year¹
Domini 400
(6.4)
(12.0)
(12.0)
(27.0)
3.3
15.5
15.6
S&P 500
(6.3)
(11.9)
(11.9)
(21.7)
3.1
14.2
14.4
S&P MidCap
(7.4)
(10.8)
(10.8)
(6.8)
8.9
16.3
n.a.
¹Annualised returns. Source: CLSA Emerging Markets
Many of the SRI funds were hurt by over-weightings in technology stocks as compared to the S&P 500. Popular technology stocks showed substantial losses during that time: Lucent Technologies down 70%, Microsoft down 63%, Dell down 66% and America Online down 54%. The MSCI Europe Index was down 6.15% and 8.39% for the six- and twelve-month periods ended 31 December 2000. Technology, media and telecoms stocks were Europe’s biggest losers, with telecom stocks tumbling 39% from their March 2000 peak. The Japanese telecom sector did poorly as well, with Sony and NTT DoCoMo both falling more than 44%. Challenge for 2001-2002
Investing in good companies in the businesses of the future Social responsibility offers competitive advantage
Thus, with technology and telecoms stocks expected to remain volatile, all fund managers will have to scour the investment landscape for companies whose earnings growth is promising. SRI funds too will need to make changes to their portfolios to find companies that fit their criteria with growth potentials. Many fund managers are quite clear about their intention to invest in the business of the future – such as renewable energy technologies and services, mass transportation, education, health, information technology and telecoms, multimedia, water management – and few, even among traditional investors, would deny that these are high-growth areas. Increasingly, social and environmental considerations by companies are considered to be sound professional practice. In essence, social responsibility is a source of competitive advantage. First of all, if companies are addressing these issues responsibly, it tends to suggest that they are responsible in other areas as well, which in turn suggests that they are likely to be better managed, which in turn suggests that their share prices will perform well in the long run. Secondly, environmental and workplace initiatives can reduce costs by cutting waste and inefficiencies or improve productivity Thirdly, socially responsibility has become critical in how a company build its brand image and reputation, which in turn affects sales, customer loyalty and even an advantage in attracting and retaining quality employees.
Fiduciary duties – Pension funds US Employee Retirement Income Security Act
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In the past, pension fund trustees and their professional advisors resisted investing along SRI lines on the grounds that it would contravene their fiduciary duties. In the US, this was clarified in 1998 by the US Department
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Section 5: SRI performance record
SRI
of Labor’s regulations and interpretations about the application of the fiduciary responsibilities under the US Employee Retirement Income Security Act 1974. Sections 403 (c) and 404 (a) (1) of the Act impose a fiduciary duty on fund managers to act prudently and solely in the interest of the fund participants and beneficiaries and for the exclusive purpose of providing benefit to them. Fiduciaries may consider collateral benefits offered by SRI funds
The Office of Regulations and Interpretations made clear that the Act does not preclude consideration of collateral benefits, such as those offered by SRI funds, in a fiduciary’s evaluation of a particular investment opportunity. In deciding whether and to what extend to invest in a particular investment, or to make a particular fund available as a designated investment alternative, a fiduciary must ordinarily consider only factors relating to the interests of plan participants and beneficiaries in their retirement income. A decision to make an investment, or to designate an investment alternative, may not be influenced by non-economic factors unless the investment ultimately chosen for the plan, when judged solely on the basis of its economic value, would be equal to or superior to alternative available investments. In discharging investment duties … fiduciaries must … consider the role the particular investment or investment course of action in the plan’s investment portfolio, taking into account such factors as diversification, liquidity, and risk/return characteristics. Because every investment necessarily causes a plan to forgo other investments opportunities, fiduciaries must consider expected return on alternative investments with similar risks available to the plan.”
UK Pensions Act section 35 – a boost for SRI
In the UK, what doubts there may have been have been clarified on 3 July 2000 as a result of a regulation introduced under the Section 35 of Pensions Act 1995. There is now a statutory obligation for all private pension funds to have a Statement of Investment Principles that must cover the types of investment, the balance between investments, risk, return and realisations. The new regulation requires all trustees to state: 1. The extent (if at all) to which social, environmental or ethical considerations are taken into account in the selection, retention and realisation of investment; and 2. The policy (if any) directing the exercise of the rights (including voting rights) attaching to the investments.
The Goode Committee Report 1993, which led to the amendment of the Pensions Act 1995, made it clear that pension funds can consider SRI: As trustees they are perfectly entitled to have a policy on ethical investment and to pursue that policy, as long as they treat the interests of the beneficiaries as paramount and the investment policy is consistent with the standards of care and prudence required by law. This means that they are free to avoid certain kinds of prudent investment which they consider the scheme members would consider objectionable, so long as they make equal advantages elsewhere.
. . . also to be extended to public sector pension funds in future
The UK government’s imposition of the new regulation lifts any doubt that it would be unlawful for pension funds to invest along SRI lines. Pension funds are of course not being forced to invest along SRI lines since the rules only oblige them to consider it and disclose their policy about it. Yet, this is a significant move as it is the first time that any government in the world has made it explicit in legislation. Moreover, the UK government is currently drafting new regulations that will apply similar obligations to public sector pension funds. The European Union is also considering legislation similar to the UK’s.
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Section 5: SRI performance record
SRI
The UK has provided a real push for SRI. It has made SRI a normal part of investment strategy. The new regulation is already having an important effect. A survey from the UK Social Investment Forum showed that 59% of occupational pension funds (representing 78% of the total assets) incorporate some level of SRI into their investment strategies. UK government even endorsed shareholder advocacy
The UK government even explicitly endorsed using shareholder influence on the pension funds to engage in dialogue with company management personnel on SRI issues. When the Pensions Minister, John Denham, introduced the regulation in Parliament, he stressed that role, and even stated that pension funds could assert their influence through the use of their voting rights.
Trust law remains unchanged
It should be said that the new regulation does not alter the primary position of Trust Law. Mark Mansley of Claros Consulting provides a useful checklist for trustees to follow to avoid legal pitfalls:
34
o
Ensure that any policy developed is the fund’s own policy – not that of the sponsor (although their views may be relevant), the union, an external entity, or based on the personal opinions of the trustees – and is regularly reviewed as this is the essence of not fettering a trustee’s discretion;
o
Explicitly consider the best financial interests of the beneficiaries before reaching a decision; and
o
Take professional advice.
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May 2001
Section 6: Conclusions
SRI
Conclusions Good opportunity to shape sustainable development in emerging markets
The world’s environmental future will be determined in significant part by what happens in the rapidly industrialising and emerging economies. The sheer scale of urban population and growth in countries like China, India and Indonesia, and the resource-intensive character of the development process, can seriously affect regional as well as global environments. Precisely because so much of the investment in these economies has yet to take place, the opportunity exists to shape a different development future – one that is far less energy- and waste-intensive. Moreover, the confluence of push and pull factors in emerging markets is forcing companies to improve CG, develop CSR and respond to international investors’ interest in SRI.
Opportunity for pension funds Demands for SRI options for pension funds will grow
As the investing public demands that social and environmental considerations are taken into account, pension funds in the US and Europe are responding. As developing countries become better off and start to develop pension schemes it is likely that there will be more demands for SRI options as well. We already see this happening in Japan and Australia. The establishment of the Mandatory Provident Fund scheme in Hong Kong is such an opportunity. Indeed, some of the community-minded groups, such as green groups, have made it known that they prefer such options although none fully fit the bill as yet. Now that there is sufficient evidence to show that SRI funds are not underperformers, opportunities exist for fund managers to offer such funds.
It makes sense for long-haul investing to support a secure and healthy world
ASRIA puts the case well: “Logic suggests that sustainable investments should be the cornerstone of pension portfolios. Pension funds are the ultimate longterm investment. A new contributor, starting their career . . . expects to see the benefits of those contributions some 35 or 40 years later. What is the world going to be like then and has the pension fund invested in every way possible to ensure that his or her world is as secure and healthy as, or better, than today’s?”
Challenge of NGOs and shareholder advocacy Companies are responding to calls for social responsibility
Whether companies in emerging markets like it or not, they will not be able to escape from the worldwide interest in CG, CSR and SRI. Firstly, with the spotlight on multinationals, such as Nike and Shell, there will be increasing attention on companies “upstream”, that is the company’s suppliers and contractors producing goods, most of which are in emerging markets. The result is that multinationals are imposing codes of conduct on their suppliers too. This will in time have a cascading effect along the entire supply chain. Nike’s story provides what may be the best example of how a company first rejected and then fully embraced CSR, and how it is gradually changing their suppliers’ and contractors’ behaviour as well.
Companies seeking international capital cannot ignore the trends – PetroChina’s IPO was a case in point
Secondly, if companies in emerging markets want international capital, they may well have to change they way they manage their companies. PetroChina’s IPO last year provides an example of how companies in emerging markets cannot ignore the chain of social movements from the developed world The IPO in April 2000 was intended to lay the groundwork for other capitalhungry Chinese state-owned enterprises to raise funds in US stock markets.
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Section 6: Conclusions
SRI
However, it was met by a campaign of resistance from NGOs concerned about human rights and the environment. For example, environmentalists charged that PetroChina was not operating in an environmentally responsible manner. Moreover, the coalition also launched a national boycott against BP-Amoco after it announced the decision to purchase a stake in the IPO. The AFLCIO wrote to 42 mutual funds asking them to boycott the offering. A number of institutional investors did not invest in PetroChina, including TIAA-CREF, a substantial pension system, and the California Public Employees Retirement System (CalPERS). BP-Amoco invested US$578 million to buy 2.2% of PetroChina stock and then faced a shareholder resolution in April 2001 for the company to divest. Although the resolution failed, it is a good example of how social and environmental issues are now raised at AGMs more frequently.
CG-CSR-SRI networking The irresistable force from a growing network of influential leaders and organisations
Those pushing for better corporate conduct and SRI represent a growing community of concerned individuals and organisations pushing for change. This network includes the UN and its agencies, international bodies such as the World Bank, OECD and ADB, responsible business groups, pension funds managers, academics and NGOs. This area is attracting some of the world’s best minds who understand and want to shape the global sustainability agenda. Individuals are playing very effective leadership roles, such as Anita Roddick of The Body Shop, Amy L Domini of Domini Social Equity Fund, Barbara Krumsiek of Calvert Group, Marcello Palazzo of Progessio Foundation, Joan Bavaria of Trillium Asset Management, Alice Tepper Marlin at Social Accountability International, Anne Simpson at the World Bank’s corporate governance team, Steve Lydenberg at KLD, Mizue Tsukushi at Good Bankers in Japan and Tessa Tennant of ASRIA. This confluence of energy and world attention has provided a strong case for SRI worldwide. ASRIA has arrived in Hong Kong in 2001 aiming specifically to increase SRI momentum in Asia. Their efforts are supported by the Calvert Group, Henderson Global Investors, Morley Fund Management, Domini Investment Management, KLD, Friends Ivory & Sime, the Women’s Division of the US United Methodist Church, Zurich Financial Services, Cooperative Insurance Services, Trillium, the Network for Social Change (UK), as well as Walden and Prudential Life Insurance HK, shows that the networking, which started in the West is growing and arriving in the emerging Asian markets.
SRI movement is forcing reappraisal of Asian investments
36
ASRIA believes that the flow of funds from the US and Europe makes the case for more SRI funds and services in Asia very strong: Consumer choice and government legislation have driven the SRI movement in the US/Europe. These forces are in turn forcing a reappraisal of Asian investments . . . . There are substantial, as yet, unrecognised, marketing opportunities on both the buy and the sell side, driven not only by this new European and American money but also by latent Asian capital.
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SRI
Appendices
Appendix 1: SRI Funds Institution Trade associations/Independent ASrIA UK Social Investment Forum Social Investment Forum Strategic Issues Research Institute Investment institutions Abderdeen Murray Johnstone AEGON Asset Management
Country HK UK USA USA
UK
Axa Sun Life Calvert Group (NFDS) CCLA Investment Mgt Ltd Citizens Funds Co-operative Insurand Services UK Coventry Group: Walden Social Equity Fund Domini Social Investments Dresdner RCM Global Investors (UK) Ltd Ecclesiastical Insurance Group Epworth Investment Management Ltd
UK USA London UK Manchester USA USA London London London
Equitable Ethical Ethical Funds Family Assurance Friendly Society Family Charities Ethical Friends Ivory & Sime Henderson Global Investors Innovest Strategic Value Advisors Jupiter Ecology/Environmental Opportunities KLD
Global Canada UK UK London London USA UK USA
MMA Praxis International Morley Fund Management Parnassus Investments Pax World Fund Family Prudential HK Scottish Widows Sovereign Ethical Storebrand Sustainable Asset Management The Women's Group of the Methodist Church
USA London USA USA HK UK UK Norway Zurich/Switzerland USA
Trillium Asset Management Australian SRI institutions AMP Henderson Global Investors Australian Ethical Investments Ltd BNP Paribas Asset Management(Australia) Challenger Managed Investments Ltd Ethical Investment Fund - Bendigo Bank Hunter Hall Investment Management ING Index Funds TOWER Asset Management
USA Australia Australia Australia Australia Australia Australia Australia Australia
Warakirri Asset Managmenent Pty Ltd Australia Westpac Investment Management Australia Zurich Financial Services Australia Japanese SRI institutions Nikko Asset Management(Eco-Fund) Japan The Good Bankers Co, Japan Japan Mutual Funds For list of 50 US-funds, see http://www.socialfunds.com/funds/chart.cgi?sfChartId=Contact+Information Source: CLSA Emerging Markets
May 2001
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SRI
Appendices
Appendix 2: How to practice SRI Information provided by ASRIA A careful selection of environmental and social factors add value to existing financial analysis:
Environmental Issues SRI investors likely to examine
Issues which SRI investors are likely to examine include the exposure to and impact of corporate activities on: climate change, water scarcity, water, air pollution, noise pollution, soil pollution, toxic waste generation, biodiversity, resource depletion (such as tropical and old growth deforestation) and ecological footprint overload. Good SRI research will consider the above issues while undertaking a systematic assessment of the following as well:
o
Impacts service
o o
Record – look for infringements or negative publicity
o
Employee motivation – whether employees are encouraged to reduce impacts e.g. recycle, avoid car use, minimise use of energy etc and assessment methods used
o
Management – whether there are corporate policies and mission statement; departmental goals and targets; use of standards, such as SA 8000 and ISO 14000, as well as provision of training to staff
– overall environmental implication of product, process and
Innovation – look for indications of environmental innovation in product design, pollution minimisation or avoidance in manufacturing processes; strategic thinking in management planning etc
Social SRI researchers usually consider the following aspects of corporate performance:
o o
Profit sharing – percentage of employees benefiting Welfare at work – employee turnover, health and safety record, family friendly policies, redundancy policies, pension provision etc
o
Equal opportunity & diversity – women and minorities in hiring and promotion, board level representation
o
Participation & rights – percentage of workforce unionized, participation in management
o o
Employee action – number of disputes, strikes, demonstrations etc
o
Community – sponsorship of community activities, nature of giving and participation, policy for overseas operations etc
Supplier motivation – whether the company is encouraging its supply chain to improve on environmental and social performance, such as using SA 8000 and ISO 14000
Corporate governance Analysis of corporate governance issues
38
SRI researchers look at the split role of the chairperson and the CEO, remuneration policies for directors, length of directors’ contracts, market reputations etc Companies that are attractive to SRI investors usually can demonstrate strong and willing involvement of the entire workforce in the development of the company. They can usually show the ways this is achieved. The company will also be able to show its accountability to the wider world through appropriate corporate citizenship.
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May 2001
Appendices
SRI
Appendix 3: SA 8000 – Global Humane Workplace Standard SA8000 Signatory membership programme Overview How SA8000 works
SA8000, the global humane workplace standard developed by Social Accountability International, provides companies that focus on selling products at wholesale and retail with a tool – the SA8000 Signatory Membership program - to demonstrate a real and credible commitment to achieving decent working conditions throughout the supply chain. To become a member, a company must define the scope of its operations that it intends to bring into compliance with SA8000, develop a plan and management system for achieving this goal, and publicly issue an annual progress report subject to verification by SAI before publication. Member benefits include the right to use the SA8000 Signatory Membership logo and description to communicate with stakeholders (eg in advertising, public relations, promotions, on-shelf signage, hang-tags etc), technical assistance in implementing SA8000 from SAI staff and other members, and access to relevant research and templates for communications, plans and systems.
Program elements Membership
To apply for membership, a company must show that it has defined the scope of its commitment to implementing SA8000 – i.e., designating the company-owned and supplier facilities that it plans to move to SA8000 compliance over time – and has communicated its adoption of SA8000 to the facilities involved. Each member is free to define its scope as it see fit and it may be defined, for example, on a particular product line, geographic area, or type of supplier. Upon acceptance of its membership application, a company has up to two years to develop and issue a plan for achieving SA8000 certification of designated facilities. This plan must include a policy giving preference to suppliers who are SA8000 applicants or certified. The member would then issue an annual report – subject to verification by SAI – about its progress in meeting this plan. The report would include a summary of the member’s scope including the number of company-owned and supplier facilities involved, the current year’s goal for applicant and certification status and the actual number of applicant and certified facilities achieved, and next year’s goals for applicant and certified facilities.
Implementation schedule Multi-phase programme
The first two years of membership is a multi-phase development programme designed to provide a company with the time, guidance and resources it needs to plan, implement and prepare to report on its commitment to SA8000. Signatory Members receive extensive technical support from SAI staff, other Signatory Members and SAI’s network of connections among trade unions, NGOs, and consultants.
o
May 2001
Phase I – Adoption and Scope (upon application for membership)
o o
Adopt SA8000 as company workplace policy for defined facilities Define scope of company-owned and supplier facilities involved
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SRI
Appendices
o o
o
Develop process for notifying facilities of SA8000 program (e.g. letter from CEO)
Phase II â&#x20AC;&#x201C; Planning and Systems (by the end of year one)
o o o o o
Create management systems to implement SA8000 and track progress Communicate preference to SA8000 applicant and certified suppliers Establish schedule for facilities to achieve certification Set date for SA8000 to become requirement for any new suppliers Begin working directly with facilities â&#x20AC;&#x201C; initial assessments, pre-audits, audits, corrective actions
Phase III - Reporting (by the end of year two)
o o o
Continue working with facilities Prepare progress report for verification by SAI Issue SAI-verified progress report
After this initial two-year period, a member company submits an annual progress to SAI for verification followed by public release.
Benefits of membership Membership can be turned into a competitive advantage
Companies that become SA8000 Signatory Members are positioned to maximize benefits in the following areas: 1) Putting company values into action o Clearly stating that widely-accepted humane workplace conditions are company values
o
Implementing a companyâ&#x20AC;&#x2122;s commitment to humane workplaces by making it part of the basic management system
o
An ethical conduct program that involves many areas of the company
o o
Adoption of SA8000 as company policy by senior management Policy development and implementation by departments that can include Purchasing, Marketing, Manufacturing/Operations, Sales, Public Relations, Legal, and Human Resources
2) Preserving and enhancing company and brand reputation o Preserving reputation
40
o
Providing a real and therefore credible public response to concerns about workplace conditions
o
Equipping managers and interested parties with the tools to identify problems in the workplace and implement solutions
o o
Enhancing reputation
o
A competitive advantage for a company that adopts the standard early on since it will have an edge in generating consumer awareness, purchasing and loyalty
o
Better access to capital:
Compelling and concrete progress to report on an ongoing basis to the growing number of consumers who care about the conditions under which products are made
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May 2001
SRI
Appendices
o
A significant factor in meeting the increasingly stringent screens of socially responsible investors and investment funds
o o
More attractive to venture capital and joint venture investments
o o o
Council on Economic Priorities’ Shopping for a Better World
A contributing factor in achieving responsibility rankings including:
good
marks
in
corporate
social
Co-Op America’s Ladders of Labor Responsibility Meeting the requirements of other voluntary corporate codes like the United Nations Global Compact, the Global Sullivan Principles, and the Fair Labor Association
3) Improving employee recruitment, retention and performance o Evidence that a company is serious about taking an ethical approach to how it treats its workers and those of its suppliers
o
A competitive advantage for a company that moves quickly to adopt the standard
o
The opportunity for managers from a wide range of departments to be part of a cross-functional team working to assure humane workplace conditions
o
Improved energy and idea generation from employees who feel that they work for a company that pursues profits and values
o
Improved factory floor results through overall increased morale, fewer injuries and sick days, and reduced fear of unfair discipline
o
Better customer service from employees who are proud of their company’s commitment to assuring humane workplaces and the resulting reputation gains
4) Better supply chain management o Better understanding of a company’s supply chain – mapping the supplier/sub-supplier network and gaining detailed information on the conditions and capacities of suppliers
o
Develop stronger relations with suppliers – standard method for identifying “good” suppliers and expanding business with them and for reforming “under-performing” suppliers or ultimately dropping them
o
Improve production cost, quality and timing – gains from focusing on and investing in partnerships with “good” suppliers
5) Opportunity to develop partnerships with other organisations o Valued credential when seeking to create partnerships with organisations concerned about workplace conditions: NGOs, governments and socially responsible companies
May 2001
o
Directory of contacts at members and certified facilities and regular member meetings
o o
Consultative Workshops with other stakeholders to provide input on SA8000
o
Regular updates on changes to SA8000 Standard and Guidance documents
Discounts on SA8000 training courses (list enclosed), conferences and publications
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SRI
Appendices
Appendix 4: SA 8000 accreditation bodies SA8000 – The global humane workplace standard To pursue SA8000 certification of a facility, contact one of the organisations accredited by Social Accountability International to conduct SA8000 compliance audits: BVQI (Bureau Veritas Quality International) Sophie Goodall 224-226 Tower Bridge Court Tower Bridge Road London SE1 2TX, UK Tel: 44 207 661 0700 Fax: 44 207 661 0790 sophie.goodall@uk.bureauveritas.com www.bvqi.com CISE Network Lavoro Etico Corso della Rupubblica 5 47100 Forlí, Italy Tel: +39.0543.38211 Fax: +39.0543.38219 etica@ciseonweb.it
DNV (Det Norske Veritas) Sangem Hsu Room 3204, Tower I Admiralty Centre 18 Harcourt Road, Hong Kong Tel: 852-2528-9168 Fax: 852-2529-5805 alice.lau@dnv.com www.dnv.com ITS (Intertek Testing Services) Larry Berson 70 Diamond Road Springfield, New Jersey 07081 Tel: 973-346-5500 Fax: 973- 379-5232 LBerson@itsqs.com www.itsqs.com
42
RWTUV Far East Ltd. Dr. K M Loi, Chief Technical Officer 16th Floor, Nation Tower 46/75-76 Moo 10, Bagna-Trad KM. 4.5 Road Bangna, Parkanong, Bangkok 10260 Thailand Tel: 662-751-4050 Fax: 662-751-4048 kmloi@rwtuv.com www.rwtuv.com SGS-ICS (International Certification Services) John Brookes Meadows Office Complex 210 Route 17 North Rutherford, N.J. 07070 Tel: 201-935-1500 Fax: 201-935-4555 sgsics@attglobal.net www.sgsicsus.com UL (Underwriters Laboratories Inc.) Steve Cohan Quality Registration Services 12 Laboratory Drive, P.O. Box 13995 Research Triangle Park, NC 27709 Tel: 919-549-1305 Fax: 919-547-6200 Stephen.L.Cohan@us.ul.com www.ul.com For questions about SA8000 certification, contact: Rochelle Zaid, SAI, Tel: 212-358-7697 x233, Fax: 212--358-7723 Rochelle@sa-intl.org
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Appendices
SRI
Appendix 5: ASRIA From the Association for Sustainable and Responsible Investment in Asia Sustainable and Responsible Investment is a positive economic choice about the way we live and the world we live in, allowing investors to integrate wider concerns, such as social justice, economic development, and a healthy environment, with conventional financial considerations. This triple bottom line approach yields both financial and societal benefits. SRI has experienced phenomenal growth in recent years especially in the USA and UK. The reasons for this growth will continue to fuel SRI development going forward.
o o o o o
Consumer choice: A general increase in environmental and social awareness has led to consumer demands that their money be invested in line with their personal values Government regulation: Legislation has further empowered SRI. In the UK it is mandatory for occupational pension funds to have an SRI policy. Performance: There is no systemic reason for underperformance, in fact empirical evidence suggests that in many cases SRI outperforms. The Domini social index has outperformed the S&P 500 over the last 10 years Portfolio management: Active SRI management allows fund managers to escape from passive screens and take a view of markets and company prospects that is driven by their understanding of the global sustainability agenda. Market efficiency: A triple bottom line examination adds to overall market information. It can both help to drive bottom line performance as well as highlighting new business opportunities, eg fuel cell technology.
In Asia there is a substantial need and opportunity for SRI. The way economies develop in Asia Pacific will have a profound impact on the health and stability of the entire world. It is estimated that discharges of industrial pollution are likely to increase tenfold in the next two decades with a â&#x20AC;&#x153;business as usualâ&#x20AC;? approach. Across the region as a whole the costs of air and water pollution and soil degradation are estimated to be above 5% of annual GDP. It is vital that finance exists to shape the course of development in a sustainable manner. Through SRI, the capital markets can help Asian economies take a leadership role in defining and building sustainable economies. ASRIA is a not for profit, trade association for SRI for the Asia Pacific region. Through the support of its founding sponsors in Europe, North America and elsewhere, ASrIA can promote global best practice in Asia from the outset. ASRIA aims to increase momentum for sustainable investment practice in four ways:
o o o o
Raise awareness and provide information to develop sustainable investment practice in the region. A web portal for SRI in the region, www.asria.org is already live and ASRIAâ&#x20AC;&#x2122;S first conference is being held in November 2001. Facilitate the provision of high quality SRI products and services by financial institutions, by increasing the flow of funds data, encouraging corporate transparency and assisting in the launch of funds. Drive the development of thinking within both the financial community and the public sector. Encourage policies which shape Asian capital markets so they reward sustainable enterprise. Create a visible community of interested individuals and organisations who can support, innovate and work together to achieve these goals. Provide a platform in which various stakeholder groups can actively engage in constructive dialogue. ASRIA will conduct an outreach program with events in partnership with others to facilitate training, ideas and information exchange.
Contact Details Euan Marshall, Business Development Director ASRIA Room 601 Hoseinee House 69 Wyndham Street, Central Hong Kong Tel: 852 2982 1272 Fax: 852 2982 2798 euan@asria.org
May 2001
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Appendix 6: ACGA Charter From the Asian Corporate Governance Association Ltd Formed in mid-1999, the Asian Corporate Governance Association (ACGA) is a private, non-profit organisation dedicated to informing and educating Asian companies on the importance of improving corporate governance in order to accelerate corporate and economic development in the region. Mission o To become a leading private-sector authority on corporate governance in Asia.
o
To promote understanding of corporate governance at international, regional and national fora, as well as to decision-makers in government, business, the media, and the wider community.
o
To assist Asian companies to improve corporate governance practices.
Strategy We will implement our mission by:
o
Providing independent information and analysis on corporate governance in Asia. This will be disseminated through various channels, including reports, newsletters and the Internet.
o
Engaging in educational outreach activities, including conferences, seminars and workshops, organised either by ACGA or other organisations.
o
Supporting Asian companies through tailored training & advisory services.
Our programme in 2001/2 Over the next 12 months we will:
o o o o o
Launch and develop an information-rich Internet site. Publish a new regional report on corporate governance in 11 Asian economies. Develop our corporate training program and advisory work. Work with companies and investors to facilitate greater recognition of corporate governance in Asia. Organise special events for ACGA sponsors and members.
Programme in 2000 Some examples of our work include:
o o o o
Preparing Asiaâ&#x20AC;&#x2122;s first report on corporate governance reform in 11 economies.
o
Forging relationships with universities and conducting seminars for them.
Providing speakers for more than 20 conferences and seminars. Hosting and organising a high-level symposium in Seoul. Conducting a customised training course for the legal and compliance department of a major investment bank in the region.
The ACGA organisation ACGA is run by a secretariat based in Hong Kong and under the guidance of a regional board of directors. We benefit from the assistance of professionals in various Asian markets and, where appropriate, we expand the scope of our work through alliances with local and international organisations. Contact Details Jamie Allen, Secretary General Asian Corporate Governance Association Limited Room 901-4, Citibank Tower 3 Garden Road, Central Hong Kong Tel: 852-2872 4048 Fax: 852-2878 7288 jallen@lapic.com
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Appendices
SRI
Appendix 7: More useful websites www.asria.org www.uksif.org www.ethicalinvesting.com www.profitwithprinciple.co.uk www.betterworld.com www.ethicalinvestors.co.uk www.sustainability-index.com www.socialinvest.org www.socialfunds.com www.bsr.org www.globalarchive.ft.com www.globalreporting.org www.cauxroundtable.org www.keidanren.org.jp www.claros.pwp.blueyonder.co.uk www.calvert.com www.kld.com www.morningstar.com www.eiris.org www.irrc.org www.sirigroup.com www.accountability.org.uk
May 2001
cloh@civic-exchange.org
45
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China - Beijing CLSA Beijing Unit 02-04, Level 20 China World Tower 2 China World Trade Centre 1 Jian Guo Men Wai Ave Beijing 100004 Tel : (86 10) 6505 0248 Fax : (86 10) 6505 2209
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India CLSA India 8/F Dalamal House Nariman Point Bombay 400 021 Tel : (91) 22 284-1348 Fax : (91) 22 284-0271 Indonesia CLSA Indonesia WISMA GKBI Suite 1501 Jl. Jendral Sudirman No.28 Jakarta 10210 Tel : (62) 21 574 2626/2323 Fax : (62) 21 574 6920 Japan Credit Lyonnais Securities (Japan) Hibiya Kokusai Building 7th Floor 2-2-3 Uchisaiwai-cho Chiyoda-ku, Tokyo 100 0011 Tel : (81) 3 5510 8650 Fax : (81) 3 5512 5896 Korea CLSA Korea 15th Floor Sean Building 116, 1-Ka, Shinmun-Ro Chongro-Ku Seoul, Korea 110-061 Tel : (82) 2 397 8400 Fax : (82) 2 771 8583 Malaysia CLSA Malaysia Suite 15-2 Level 15 Menara PanGlobal 8 Lorong P Ramlee Off Jalan P Ramlee 50250 Kuala Lumpur Tel : (60) 3 232 4288 Fax : (60) 3 238 4868 Mexico Credit Lyonnais Mexico Monte Sinai 120, p.b. Colonia Lomas de Chapultepec C.P. 11000, Mexico D.F. Tel : (525) 202 0900 Fax : (525) 202 9101 Pakistan CLSA Pakistan No. 410 4/F Clifton Centre Khayaban-e-Roomi Clifton Karachi Tel : (92) 21 587 1074/1011 Fax : (92) 21 586 2802
Philippines CLSA Philippines 18th Floor, Tower One The Enterprise Center 6766 Ayala Avenue corner Paseo de Roxas Makati City Tel : (63) 2 886 5637-46 Fax : (63) 2 886 5692 South Africa CLSA Africa 31 Impala Road, Chislehurston Sandton, 2196 Johannesburg Tel : (27) 11 292 8000 Fax : (27) 11 783 0887 Switzerland CLSA Geneva 4 Rue du Parc 1207 Geneva - Switzerland Tel : (41) 22 718 0303 Fax : (41) 22 718 0313 Taiwan CLSA Taiwan 6/F, No. 117, Sec. 3 Min-sheng E. Road Taipei Tel : (886) 2 2717 0737 Fax : (886) 2 2717 0738 Thailand CLSA Thailand 16th Floor, M. Thai Tower All Seasons Place 87 Wireless Road, Lumpini Pathumwan, Bangkok 10330 Tel : (662) 253 2945/655 8725 Fax : (662) 253 0534 Turkey CLSA Turkey Spor Caddesi, BJK Plaza A Blok A1-06 80680 Akaretler Besiktas, ¸ ¸ Istanbul Tel : (90) 212 258 6422 Fax : (90) 212 327 1210
Via the CL Bank network Czech Republic Credit Lyonnais Czech Republic A.A. Myslbk Building, 6th Floor Ovocny Trh8 1100 Prague, Czech Republic Tel : (4202) 220 76101 Fax : (4202) 220 76109 Egypt Credit Lyonnais Egypt 3 El Yemen Street Giza, Cairo, Egypt Tel : (202) 337 9622 Fax : (202) 360 6458
Hungary Credit Lyonnais Hungary Jozsesnador No. 7 Budapest, Hungary Tel : (361) 266 9000 Fax : (361) 267 4182
Poland Credit Lyonnais Poland Al. Jerozolinskie 6579 Warsaw, Poland Tel : (48) 22 630 6888 Fax : (48) 22 635 4500
Morocco Credit Lyonnais Morocco Crédit du Maroc Capital 201, Bd Zerktouni Casablanca, Morocco Tel : (212 2) 94 07 44 Fax : (212 2) 94 07 66
Russia Credit Lyonnais Russia Nicolo Yamskaya 15 109240 Moscow, Russia Tel : (7) 502 221 8500 Fax : (7) 502 564 8549
Ukraine Credit Lyonnais Ukraine Ukranian House, 4th Floor No. 2 Khreschchatyk Street 252001 Kiev, Ukraine Tel : (380) 44 22 95 400 Fax : (380) 44 22 83025
©2001 CLSA Emerging Markets. This report is produced by CLSA Ltd for private circulation. All information, views and advice are given in good faith but without legal responsibility. CLSA Ltd or companies or individuals connected with it may have used research material before publication and may have positions in or may be materially interested in any of the stocks in any of the markets mentioned. MITA (P) 188/07/2000