23rd December 2011
But where will SRI go in 2012? Will it retreat to negative only? Will it go further into the mainstream? Mindful Money put key questions to the SRI team at Ecclesiastical Investment Management, which is joining the Mindful Money family as a sponsor on January 1. Their answers are in italics.
The Kyoto/Durban talks did not get a great press. So will be the follow through? Is this good or bad for investors?
Nothing is going to happen and the impact on investors for the most part will be neutral. There is often a long time lag between international agreements having an impact on the investment world. Canada's recent decision on Kyoto (to pull out of the existing treaty) shows that often the agreements are worth very little when national interests rear their ugly heads.
There is an increasing trend for big companies to buy small brands that have built up ethical credentials. Examples are Coca-Cola and Honest Tea and Kraft (owners of Cadbury) with organic chocolate brand Green & Blacks. Is this interface worrying or the way forward?
Large corporations can often learn from nimbler, small players with concentrated expertise in the Fair Trade or organic space. Integrity preservation is fundamental, but access to greater capital leverage can only be beneficial for driving social return e.g. retailers and bananas, or the Fair Trade products launched by Cadbury and Nestle.
There is a ever changing balance between negative and positive screening in SRI. Where do you see it now and will it change?
We don't detect any appetite to change the fundamentals which are well drawn and executed. Case of horses for courses and the majority of participants have chosen their paths -" best in class", positive screening, negative screening, engagement etc. The greater the choice, the greater the benefit to the client
Many see a growing convergence of SRI with the main stream. How far will SRI and non SRI move together (or apart) over the next year or so?
Core ethical investing will remain an influential niche. Mainstream SRI which integrates holistic risk assessment into business and investment evaluation should begin to emerge, especially around the area of catastrophic risk e.g. BP, climate change. So the mainstream will pick up more on SRI which will be to the advantage of socially responsible investment.
Impact investing is a new trend becoming apparent in the United States over the past year. It involves investors who will actively seek to place capital in businesses and funds that combine financial and social returns. These businesses can thus provide social or environmental impact at a scale that purely philanthropic interventions usually cannot reach.
Does impact investing mean anything for SRI in the UK?
We detect emerging interest in impact investing, aimed initially at the High Net Worth Investor market, with possible appetite in the charity and faith investor markets. A variety of interesting projects and opportunities are emerging e.g. the Peterborough Social Impact Bond but it is still early days.
Is there a role for more private equity in SRI such as encouraging small start-ups and other ventures?
We can't see this as a priority as the emphasis first and foremost is on creditavailability and liquidity.
Giirs (which stands for the Global Impact Investing Ratings System) is a US based "comprehensive and transparent system for assessing the social and environmental impact of companies and funds with ratings and analytics". It is backed by a number of US firms. Will UK investors add this to their vocabulary in 2012?
Not likely to enter the lexicon of SRI in the near or medium future
Will private investors be more or less enthusiastic for SRI in 2012? Why?
The effect of the Henderson closedown will require close reflection; there could be some interesting churn in placements in 2012 from Henderson to other, smaller managers
Will advisers (other than those already 100% on the SRI message) differentiate between what SRI tries to deliver and non-screened investments or continue to say SRI delivers lower performance (whatever the truth) compared with a fund full of tobacco stocks, pornographers and gun manufacturer?
Those advisers who are not actively part of the SRI landscape will always have the lazy option to denigrate SRI in terms of lack of performance, despite evidence to the contrary. They also have the added ammunition of pointing out the restricted universe, which some parts of SRI entail and can label any outperformance as a mere blip. The advisers who are SRI oriented will carry on pointing to the long term performance of the sector, by picking the best managed SRI funds.
Are there any other trends you see coming to the fore in 2012?
The Stewardship Code calls for closer collaboration between owners on material risk; we may see more collaborations between investor groups to achieve change – this is particularly active in the faith investor space, and may spread to include more activist pension funds such as BBC Railpen and local authorities.
We expect the government will act to encourage shareowners to take a more activist approach in terms of voting and policing remuneration. Finally, we believe investors will continue to have an appetite to invest where performance and SRI can be combined with force and expertise.
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