FREQUENTLY ASKED QUESTIONS
Q. How long has SRI been around?
The roots of SRI can be traced to the 1920s. The Methodist Church in
North America decided to invest in the stock market, having previously
viewed it as a form of gambling. However, they wished to exclude certain
types of companies, specifically those involved in alcohol or gambling.
The Quakers soon followed, but they were especially keen to avoid weapons
manufacture.
Public demand for SRI or 'ethical' investment vehicles really took off
in America with the launch of the Pax Fund in 1971 as a reaction against
the Vietnam war. Discontent caused by the Vietnam War had led some investors
to question how their money was being used. Many were particularly angry
with the manufacturers of Agent Orange, the defoliant sprayed on Vietnamese
jungles which caused havoc with farming and health, and resulted in deformations
in the babies of people who came into contact with it. The first ethical
fund in the UK was launched in 1984.
Other interests, beyond those concerned with religious ethics, became
involved in the field especially those concerned with the environment
and development issues. This gave rise to a wider definition of socially
responsible investment and greater focus, for example, on sustainable
development as the underlying investment objective. The first ecology
fund was launched in the UK in 1988 and in the USA soon after.
Q.Is SRI different to sustainable investment?
No. Socially Responsible Investment is the better known term, and has
typically included environmental concerns within it. However, many people
believe the term sustainable is a more correct way of describing social
and environmental concerns in one word. Hence ASrIA is the Association
for Sustainable and Responsible Investment in Asia, and fully embraces
the existing SRI field.
Q.What funds are currently available to Asian investors
Some SRI and 'eco' funds already exist in Asia. (see
SRI in Asia). ASrIA aims to help SRI funds to be launched in other
markets in the region. If you want SRI investment opportunities in your
country and none are currently available please register your demand on
the What Investors Want poll (coming soon).
Q.I am an expat or work for an international agency
in the region. What SRI options are open to me?
Expats can invest in a range of US, UK and European funds. For details
visit Co-Op America or the UK
Social Investment Forum. If you are interested to invest in Asian
SRI options see our own page, SRI in Asia.
SRI off-shore options are available. Check whether your company has an
SRI option as part of the pension scheme and encourage them to include
one if there isn't. Also we recommend you subscribe to our free e-bulletin
- and/or recommend your Financial Advisor to contact ASrIA
about becoming a member.
Q. What criteria do SRI funds use? How can I tell
whether an investment is really socially responsible?
Most of us can agree that we want to live in a safe, unpolluted, healthy
world but we may have different views on what business activities are
acceptable and the importance of particular issues.
What good socially responsible investments have in common is that they
clearly state the ethical, social and environmental criteria which define
the investment strategy and provide information on the investments which
they make. You can then decide whether the fund or service is right for
you or for your clients, pension fund, charity, etc.
The proliferation of SRI funds and steadily improving information flows
on corporate environmental and social performance have resulted in an
extensive list of issues which are encapsulated by SRI funds in some shape
or form. Perhaps the most comprehensive account of the issues can be found
under the Global Reporting Initiative www.globalreporting.org This organisation
is seeking to create global standards for environmental and social reporting.
If your organisation has published other research tools and criteria
please provide details so that we can include them in our reference materials,
in the Library.
See the section on How
to practice SRI for more understanding of the criteria SRI funds use
and what to look for when selecting a fund.
Q. Don't investors sacrifice performance when they
choose these funds?
No. Investors can do as well with social investments as they can with
conventional investments.
Returns of socially responsible investments are competitive and socially
aware investors can do very well employing a triple bottom line approach
to investing. Take a look at SRI & the Markets,
Performance or the research papers in our library .
This comment should not be taken as financial advice. See our disclaimer.
Q. Can I really make money with a clean conscience?
Investment in the large companies quoted on the stock market is unlikely
ever to offer a completely "clean" investment for the investor with very
strongly held views. But socially responsible investment allows a much
better fit between financial decisions and personal values compared with
the average investment. Take a look at SRI
& the Markets, Performance.
Community investing may be more appropriate for people with strongly
held values and will generally not offer the financial returns traditionally
provided by investing in stocks and shares.
Q. Is my money more at risk in socially responsible
investments?
Evidence suggests that many SRI Funds in the UK and elsewhere may be
less volatile than the average stock market investment fund (ie. they
may experience a lower level of swings in value over a particular time
period). This runs counter to conventional wisdom which claims that SRI
funds should be more volatile because they tend to have a greater proportion
of investments in smaller companies. In addition, some investment institutions
are now introducing SRI funds specifically for the more risk-averse investor.
Take a look at the research papers in our library.
Investments in non-bank loan funds or unquoted companies are subject to
particular risks. Always, read the small print describing these investments
to understand the level of risk involved.
These comments should not be taken as financial advice. See our
disclaimer.
Q. How do socially responsible funds and portfolios
perform?
The recent US Social Investment Forum report on the ranking of socially
screened funds found that half of all Socially Responsible Funds earned
top Morningstar, Lipper Marks. Seventy percent of the largest socially
screened mutual funds in the United States earned the highest marks possible
for their performance -- and half of the wider group of social funds got
top rankings.
See also the Fund Performance charts (coming soon).
In examining these charts please note the following: When analysing the
performance of both socially screened and conventionally managed portfolios,
it is important to compare "apples to apples." The academic studies available
in the library compare similar portfolios. Lastly, don't fall into the
trap that others have and simply tally up the 45+ socially responsible
funds and average their performances. As any sophisticated investor knows,
various types of funds react differently to the market. For example, international
funds or funds following a contrarian investment policy will generally
perform quite differently than most domestic funds in the same market.
It's true that at any given time among the SRI funds, just like any other
group of 45 mutual funds, some are in the top portion of the market, some
are in the bottom, most are in the middle. You have to look at the type
of fund, the fund's style of management (i.e. does the market currently
favor large or small company funds?) and the funds managers to find out
why it is positioned the way it is. Moreover, the type, style and management
can tell you how well a particular fund is doing compared to the market
-- whether or not it is a SRI fund won't by itself.
The bottom line for investors: Know your investment goals -- what you
need to earn to meet your future financial needs. Know your risk preference
-- how much of the ups and downs of the market you can tolerate. Then
consider the SRI option which best suits you.
Q. What is Shareholder Engagement? How can investors
become more active and informed shareholders?
Following the financial crisis in Asian markets, corporate governance
issues are being taken much more seriously by investors in this region.
The Asian Association for Corporate Governance was established in 2000
to further the case for greater democracy and accountability by Asian
corporates. These issues still dominate the agenda for active engagement.
In the US, the US Social Investment Forum provided several tips for how
to be a "Wise Shareholder" in their news release on Key Issues in the
1998 Proxy Season.
The Interfaith Centre for Corporate Responsibility, ICCR (www.iccr.org)
has excellent information on SRI related proxy resolutions submitted each
year. Also in the US the Investor Responsibility Research Centre (www.irrc.org)
has a global shareholder service covering over 80 countries. Subscribers
can receive information on governance issues and there is a proxy voting
service. In the UK Pensions Investment Research Consultants (www.pirc.co.uk)
has an SRI service based on the key stakeholder relationships at both
the national and international level and a corporate governance service
which provides advice and undertakes proxy voting.
Also in the Membership Directory find out what the different fund providers
offer in terms of active engagement, on your behalf, for the funds you
choose to invest in. There are also several books referenced in the library
which give more information and case studies on active engagement.
Q. How can I get started with investing in a socially
responsible way?
If you are interested to invest in Asian SRI options see (SRI
in Asia). Also we recommend you subscribe to our free e-bulletin,
and also recommend your Financial Advisor to contact ASrIA
about becoming a member.
If you are one of the following we strongly recommend you to contact
ASrIA about becoming a member.
- Investment Managers
- Independent Financial Adviser
- Investment Professional
- Trustee of a Charity, Charitable Foundation
or Pension Fund
Q. Can charities invest in a socially responsible
way?
Yes, so long as the trustees take account of their responsibilities under
trust law when making investment decisions. The current legal position
in the UK may be helpful guidance and is outlined in the Charity Commission
booklet CC14 - Investment of Charitable Funds. The UK's Charities Aid
Foundation (see SRI global links) may also be
able to assist you. In 1999, they launched a specialist SRI Fund for Charities
in the UK. If you want to know more about SRI strategies for charities
and charitable foundations, look in our Library.
In many countries church and spiritual groups are becoming active in
the SRI field. Some organizations such as the Church Commissioners in
the UK have had an ethical investment policy for many years. Indeed the
first SRI funds in the UK and the USA were created by religious groups.
In the USA the highly regarded Interfaith Centre for Corporate Responsibility
(www.iccr.org) helps many religious groups to work collectively on shareholder
resolutions, urging companies to adopt more responsible business practices.
In Australia, religious groups are now exploring how to work together.
(global links). In the UK, the Christian Ethical
Investment Group have produced a useful booklet (link to
Library reference).
Q. How does SRI fit with the fiduciary responsibilities
of pension trustees?
There are two highly significant developments in recent years which trustees
should be aware of:
In the UK, from 3 July 2000, as a result of an amendment to the 1995
Pensions Act, trustees of occupational pension funds must declare in their
statement of investment principles:
i. The extent (if at all) to which social, environmental or ethical considerations
are taken into account in the selection, retention and realisation of
investments; and
ii. The policy (if any) directing the exercise of the rights (including
voting rights) attaching to investments.
UK Local authority pension funds will be required to make a similar statement
and the European Commission is also examining how this principle might
become a European wide requirement.
In the US the Department of Labour has stated that "the fiduciary standards
of sections 403 and 404 do not preclude consideration of collateral benefits,
such as those offered by a "socially responsible" fund, in a fiduciary's
evaluation of a particular investment opportunity. However, the existence
of such collateral benefits may be decisive only if the fiduciary determines
that the investment offering the collateral benefits is expected to provide
an investment return commensurate to alternative investments having similar
risks." For a full copy of the letter please go to US Department of Labour website.
From a legal perspective as long as the interests of the beneficiaries
are paramount then SRI does not contravene fiduciary responsibility.
Furthermore, logic suggests that sustainable investments should be the
cornerstone of pension portfolios. Pension funds are the ultimate long-term
investment. A new contributor, starting their career in their late teens
or early twenties expects to see the benefits of those contributions some
thirty-five or forty 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?
Take a look at the trend data in the Asia country profiles to understand
why pensions investment strategies are so important.
Q. What are NGO's doing on SRI?
In recent years several leading environment and development focused NGOs
have developed public awareness campaigns about investment and SRI. They,
along with church groups and others have wanted to make the link in the
public mind between investments in pensions, savings, insurance and other
financial products and the end result of that investment. Is capital being
directed towards sustainable enterprises or not? Friends of the Earth,
War on Want and others have developed campaigns, and recently Oxfam have
launched a new pension fund with Friends Ivory & Sime for the UK market.
We want NGO's to join the ASrIA network to help shape environmental and
social objectives in business and to achieve the common global goal of
sustainable economic development.
Q. Who tracks the financial performance of these
socially screened funds?
All the major fund tracking companies track some socially screened funds.
Through its partnership with the Social Investment Forum, Wiesenberger
tracks the most by far -- 185 funds as of January 1999.
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