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Socially Responsible Investment (SRI)

MGT 427 - Corporate Governance. Socially Responsible Investment (SRI). Faisal AlSager. Week 6. Objectives. To understand the different approaches that may be used for socially responsible (ethical) investment

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Socially Responsible Investment (SRI)

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  1. MGT 427 - Corporate Governance Socially Responsible Investment(SRI) • Faisal AlSager Week 6

  2. Objectives • To understand the different approaches that may be used for socially responsible (ethical) investment • To appreciate the role of institutional investors in socially responsible investment • To be aware of some indices that may be used to assess the performance of socially responsible funds

  3. What is SRI? • SRI involves considering the ethical, social, and environmental performance of companies selected as well as their their financial performance. • SRI is also called ethical investment • SRI covers different areas: genetic engineering, the environment, employment conditions, and human rights

  4. SRI for Institutional Investors • Institutional investors have become aware of the importance of SRI because • client demand • corporate citizenship • potential economic benefits

  5. Strategies for SRI • Three basic strategies for SRI • Engagement - identify areas for improvement in the ethical, social, environmental policies of the companies invested in, and encourage them to make improvements • Preference - fund managers work to a list of guidelines that trustees prefer companies invested in to meet • Screening - trustees ask for investments to be limited to companies selected (screened) for their ethical behavior. May be ‘positive’ or ‘negative’ screening

  6. International Guidance • Global Sullivan Principles (1977) - principles that are directed toward increasing CSR throughout the world, based on self-help • The MacBride Principles (1984) - consists of nine fair employment, affirmative action principles • UN Global Compact (1999) - nine principles relating to the areas of human rights, labor standards, and environmental practices • OECD Guidelines for Multinational Enterprises (2000) - cover areas such as disclosure, environment, employment, industrial relations, and consumer interests

  7. International Guidance • Global Reporting Initiative (GRI) Sustainability Guidelines (2002) - the United Nations Environment Programme (UNEP) and CERES formed a partnership in 1999 to encourage NGOs, business associations, corporations, and stakeholders to undertake sustainability reporting. The 2002 guidelines represent the latest consensus on a reporting framework for sustainability reporting

  8. CSR Indices • FTSE4Good Indices • designed to reflect the performance of socially responsible equities • three criteria: human rights, stakeholder relations, environmental • launched in 2001 • four Markets: US, UK, Europe, and global • DJSI (Dow Jones Sustainability Indices) • aimed at providing indices to benchmark the performance of investments in sustainability companies and funds • includes only leading sustainability companies worldwide • criteria: corporate governance, scorecards and measurement systems, environmental performance, and external stakeholders

  9. SRI Increasing Importance • SRI is highly considered in the UK and USA, especially in institutional investors • SRI is seen as a mainstream corporate governance issue • There is the increasing perception that SRI can help to maintain or increase shareholder value

  10. References • Corporate Governance: Mallin, Tina. Oxford.

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