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Investing Responsibly

September 25, 2009 by  
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By Daniel Chandranayagam

While South-East Asia might be slow on the uptake, sustainable and responsible investment (SRI) is fast becoming the financial trend in the West. According to Reuters, fund manager RCM states that such investments ”offer a unique diversifying opportunity”. SRI is an approach designed to pick companies which manage environmental, social and governance (ESG) risks.

As an illustration of this phenomenon, Reuters states that nearly 600 asset owners, investment managers and professional service partners representing a total of USD18 billion have signed up to the Principles for Responsible Investment (PRI), a United Nations-led framework.In Asia, calls for more emphasis on SRI and ethical business have been fighting with the traditional notion that the bottom line rules over all. However, more reports have recently highlighted the move towards investment in businesses that contribute to society or help to preserve the environment.

Chief executive of Thailand’s TMB Asset Management Co, Somjin Sornpaisarn, stated recently:

To some extent, investors as shareholders of companies can set business direction. We can do good by investing in valuable companies, not only in terms of financial needs but also creating a positive impact on society.

In line with this, RCM, an equity management arm of Allianz Global Investors, counters criticism that sustainable investment restricts the investment universe and under-performs a broader market,  stating that historical performance data showed no relative loss and at certain times offered extra returns.

RCM sustainability research analyst, Barbara Evans, stated:

It’s not about XYZ companies being bad but  more about what may be good. If a company meets certain criteria, potentially that may bring better performance. Companies acting in a responsible way will perhaps be more sustainable in the future.

Somjin echoes this, saying that investing in socially responsible businesses would result in good returns.

Investors do not invest based on the previous reputation of a company, instead they buy the promise of good returns in the future.

If a company provides good returns at present but takes advantage of its employees, no one would want to invest in such a company as it is a sign that it might not last in the long term.

Without high investment capital to create an impact by themselves, investors can still play a cheerleader role through their investments in socially responsible businesses.

It is hard to tell how quickly the East will follow the West. Currently, the Dow Jones Sustainability World Index has risen 29% since the start of 2009, compared with 28% in the benchmark MSCI world equity index.

Executive director for the industry development centre at the Stock Exchange of Thailand, Chaiyoot Chamnanlertkit, was reported to have said that it is important to explain to stakeholders about their sustainability activities. Furthermore, stakeholders should tell companies what they would like to see:

Investors should be able to tell companies what kind of CSR they would like to see. Investing in socially responsible businesses offers a win-win situation for all parties.

In Europe, the driver of sustainable investment among government-owned institutions is Norway’s sovereign wealth fund which follows ethical guidelines set by the government and is seeking to play a “green activist” role. The fund rules out holding investments in certain firms, for instance those that produce nuclear arms or cluster munitions, or that damage the environment or abuse human rights.

According to Social Investment Forum Foundation, the market is getting stronger in the USA, Europe, Japan and Hong Kong. In the USA, about 11% of assets from 246 professionally managed specialist funds are involved in socially responsible investment, according to the . SRI assets in the USA in 2007 were estimated at USD2.71 trillion, up from $639 billion in 1995.

Chaiyoot said an SRI index would help shape CSR activities among businesses in Thailand, as the index is based on environmental, social and good governance aspects. The standard can be used as a sustainability benchmark for listed companies and as a tool for investors to assess a company.◊

“Investors do not invest based on the previous reputation of a company, instead they buy the promise of good returns in the future,” he points out.
“If a company provides good returns at present but takes advantage of its employees, no one would want to invest in such a company as it is a sign that it might not last in the long term.”
“Without high investment capital to create an impact by themselves, investors can still play a cheerleader role through their investments in socially responsible businesses,” Mr Somjin said.
Chaiyoot Chamnanlertkit, executive director for the industry development centre at the Stock Exchange of Thailand, said businesses might find it difficult to engage in corporate social responsibility (CSR) if shareholders do not understand why businesses are spending on CSR.
“Many times when businesses have made donations, there are questions from shareholders about why companies are spending part of what is supposed to be their dividends on charity,” Mr Chaiyoot said.
This is why it is important to explain to stakeholders about their sustainability activities, he said. “Investors should be able to tell companies what kind of CSR they would like to see. Investing in socially responsible businesses offers a win-win situation for all parties.”
Socially responsible investment (SRI) not only considers financial aspects but also factors in corporate responsibility.
SRI investors seek to invest in profitable companies that incorporate social responsibility and good governance into their everyday business practices. For instance, companies with good relations among staff and executives, strong social and environmental practices, and safe products and business operations that do not violate human rights.
Some investors will avoid investing in businesses involving alcohol, tobacco, gambling and weapons.
SRI is a growing market in the United States, Europe, Japan and Hong Kong. In the US, about 11 percent of assets from 246 professionally managed specialist funds are involved in socially responsible investment, according to the Social Investment Forum Foundation.
SRI assets in the US in 2007 were estimated at US$2.71 trillion, up from $639 billion in 1995. Singapore and Malaysia set up an SRI index or sustainability index last year.
Mr Chaiyoot said an SRI index would help shape CSR activities among businesses as the index is based on environmental, social and good governance aspects. The standard can be used as a sustainability benchmark for listed companies and as a tool for investors to assess a company.

Mr Chaiyoot said an SRI would also add value to businesses and the creation of an SRI fund could attract foreign investors.

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