July 21, 2009, Jody White
An increasing number of institutional investors are adopting socially responsible investing (SRI) into their internal and external operations in response to the global financial crisis, according to a recent report.
The Principles for Responsible Investment (PRI) Initiative—an investor partnership with the UN Environment Programme Finance Initiative and the UN Global Compact — currently has 560 signatories managing a total of US$18 trillion in assets. PRI’s latest annual assessment points to signs of a growing culture of active ownership and collaboration among investors in response to the financial crisis, due, in part, to the realization that a proper consideration of environmental, social and governance (ESG) issues within the investment process is a key component of a successful investment strategy.
A survey of 300 global pension funds and fund managers, conducted by PRI and Mercer, found two-thirds of respondents include responsible investment elements in contracts for the external managers of their investments, while a much smaller number (less than 15%) include these in the incentive structure of externally managed funds.
There are also a sizable and growing number of signatories who actively encourage service providers or peers to become PRI signatories or consider responsible investing/ESG factors, with 65% stating they did so in 2008 compared with 56% in 2007.
The report states that 32% of buy-side respondents are now attributing 5% or more of the total commission spent to SRI, compared with less than one in 10 respondents in 2005, while more than 60% of buy-side respondents see commissions directly related to SRI/sustainable research services increasing in the next 12 months. Four out of five fund managers are looking for SRI research to be integrated into mainstream analysis.
PRI holds up organizations such as Société Générale, Cheuvreux, UBS and HSBC as proof that SRI investing can give companies an edge in their industries.