New survey reveals many investment fund managers in the U.K. expect interest in socially responsible investment to continue growing.
Investment fund managers in the United Kingdom are becoming increasingly interested in the social, environmental and ethical performance of corporations, and are considering how to best translate that interest into action. These insights were derived from the results of a survey of fund managers conducted by Deloitte & Touche, one of the U.K.’s largest professional services firm.
Interest in socially responsible investing (SRI) in the U.K. took a sharp turn upward last July when an amendment to the Pensions & Investments Act came into effect. The amendment requires occupational pension plan trustees to disclose how social, environmental and ethical issues are accounted for in the investing strategies of their pension plans.
Over 80 fund managers responded to the telephone survey, a response rate of 72 percent. Researchers claim this high rate is another indicator of the high level of interest in SRI. The survey was conducted during the fall of 2000 and the results were released last month.
"Clearly, fund managers are reacting to the growing importance placed on SRI by a large number of the country’s leading pension funds," said Chris Burgess, Leader of Environmental and Sustainable Services at Deloitte & Touche.
Of the 80 managers surveyed, 36 percent stated they already held SRI investments, and another 19 percent were in the process of getting into the market. Less than 15 percent said they had no plans to include SRI in their investing strategy.
The actions of socially responsible investors can take different forms, from screening out companies that do not meet defined criteria to proactive engagement with companies through dialogue and shareholder resolutions. A relatively large number of the fund managers, 41%, intend to actively interact with the companies held in their portfolios rather than only apply screens.
But screening, both negative and positive, is also being considered by some managers. Negative screening, mentioned before, excludes companies that do not meet preset social responsibility standards. Positive screening involves choosing only corporations that are social, environmental and ethical business practice leaders. The survey revealed that 22 percent of the managers would apply negative screens and 22 percent would apply positive screens. A small percentage of respondents plan to combine proactive engagement with screening.
One of the more nebulous aspects of SRI, from the perspective of investors that proactively engage companies, is measuring how their SRI-related initiatives affect corporate performance. The survey indicated that over one-third of the fund managers have yet to make a decision regarding how they will evaluate their efforts. Other fund managers said they would develop their own assessment systems or use third-party metrics.
Chris Burgess believes that investors eventually need to verify the connection between SRI and market value. "The practical mechanics of SRI will continue to evolve," he declared. "A key challenge will be whether the result becomes a means to identify how corporate social responsibility strategies impact on shareholder value, or whether SRI becomes merely a "tick box" exercise delivering little real benefit," he added.
Considering the positive SRI financial and non-financial returns over the last ten years in the U.S., some American social investors might argue that socially responsible investing has already validated itself. The results of Deloitte & Touche’s survey would seem to indicate that a growing number of U.K. investors hope to achieve similar results.