INTERVIEW-Calpers' Asia ethics motives right, tactics wrong

By Nick Edwards

HONG KONG, Feb 22 (Reuters) - Right motive, wrong tactic.

That's what Tessa Tennant, Asia's leading ethical investing advocate, thinks of the move by giant U.S. pension fund, Calpers, to blacklist four Southeast Asian markets on ethical grounds.

"It doesn't really help anyone at the corporate level if there's just a blanket ban," Tennant told Reuters.

The chairwoman of the year-old Association for Sustainable and Responsible Investment in Asia (Asria), whose members control about $10 billion of ethical investments worldwide, says more is achieved by engagement than exclusion.

"I'm certainly in the camp of views that the more one can highlight best practice and encourage people who've got their act together and recognise and reward them as investors, the better."

Pioneering the cause of socially responsible investing (SRI) around the globe from London to Washington and now Hong Kong for the past 15 years variously as fund manager, thinktank expert and United Nations adviser, Tennant has helped transform a fringe forum into a deadly serious $1.4 trillion industry.

She says best ethical practice can be found in Thailand, the Philippines, Indonesia and Malaysia -- the four countries the $151-billion California Public Employees' Pension Scheme (Calpers) axed from its acceptable list, sparking a fresh ethical investing controversy in Asia on Thursday.

"I know there are some cracking companies in those countries. The tactic of getting in there and backing them is important," said Tennant, a former head of SRI strategy at Henderson Global Investors which manages about $1.5 billion in ethical funds alongside traditional portfolios.

AMP unit Henderson is a recognised leader in SRI fund management and is a founding member of Asria, along with CGNU unit Morley Fund Management, Kingsway Fund Management and Zurich Financial Services.

SWEPT UNDER THE CARPET

But Tennant said Calpers deserved credit for even tackling an issue that many investors prefered to sweep under the carpet.

"It is very important for the whole quest to raise standards of corporate governance and sort out issues of cronyism and accountability. This is a
very important signal to governments that they have to take these things seriously," she said.

The fervour of ethical campaigners -- from religious groups, to environmentalists and anti-war activists to labour rights lobbyists -- ensures that controversy
is never far from the emotive subject of socially responsible investing.

But Tennant says SRI is becoming increasingly mainstream.

 

"Today's ethical nutter is tomorrow's prudent Man. It's the most brilliant line I've heard," she said, adding that old fashioned economics had been a potent force for discrediting the once favoured philosophy of industrialise first, clean up later.

"Now it is appreciated that we can't afford to think that way. Any emerging economy that is designing into its development process more and more burning of carbon, putting emphasis on massive road building and huge fossil-fuelled power stations, they are the crackpots," she said.

"They are creating huge liabilities for their economies further down the line."

POLLUTION NIGHTMARE

Investors need look no further than the world's most powerful economy -- the United States -- for supporting evidence.
Its pollution nightmare was realised in the 1980s, forcing the creation of a special Superfund to pay tens of billions of dollars worth of clean-up costs that risked bankrupting the insurance industry and set off more than a decade of litigation.

U.S. investors have now channelled $1.3 trillion dollar into ethical investments, some 90 percent of the worldwide total.

And while ethical investing in Asia, where pragmatism rules populism, is small by comparison, it is growing. About $1.5 billion has been invested in eight specialist Japanese funds
in about two years and Australian money managers control at least A$10 billion ($5 billion) in SRI products.

Tennant says the logic of the economic arguments will see SRI become more important in Asia -- home to about half the world's population and some of its most resource intensive economies.

And that's without telling people that using current production methods and consumption rates, raising emerging economy living standards around the world to those enjoyed by the West would require the resources of three planets.

"A lot of SRI funds are weighted towards the industries of the future, renewable or cleaner energy, mass transit systems, process control, water management, health and education. These industries are already part of the solution of making the shift to cleaner production and sustainable livelihoods,"
she said.

"It's a sheer numbers game that uses a different set of numbers to the ones financial institutions normally use. That logic of SRI appeals to a lot of Asian investors. It's not emotional, or a do-gooding view of investment," Tennant said.