An increasing number of investment professionals are recognising the business case for companies to adopt a robust approach to corporate social responsibility (CSR), according to a survey released today by Deloitte & Touche. Over the last twelve months, more than 50% of fund managers in the survey perceived an increased interest in socially responsible investment (SRI) from their clients, although 56% of respondents believe that SRI will remain a niche segment of the market, catering for a minority of investors with particular "ethical" values, through relatively small specialist funds.
Sixty-five investment fund managers responsible for managing over £1,400 billion of assets for their clients participated in the second annual Deloitte & Touche SRI survey. Since the last survey, FTSE has launched its FTSE4Good set of indices, the Association of British Insurers has released its guidance on SRI-related disclosures for listed companies, and the Myners Report was published, advocating greater shareholder activism.
Fund managers’ interest in SRI is primarily influenced by client demand, according to the survey. Respondents listed government pressure, the Myners Report and its reference to increasing the proactive role of fund managers in corporate engagement, and competitor activity as other important factors influencing SRI growth. The potential for SRI-based investments to outperform the market was seen as less important in driving growth, and the action of pressure groups were seen as largely irrelevant.
* Seventy per cent of respondents believe that fund managers will become significantly more active in exercising SRI voting rights in the next three years;
* A perceived lack of demand (50%) or lack of expertise (18%) were the key barriers to fund managers’ adoption of SRI
* While client demand was the overriding driver for SRI growth, 48 per cent of fund managers survey felt that pension fund trustees had little or no real interest in SRI, and had become engaged purely to protect their own reputations and deflect Government or pressure group criticism;
* While 90% believe that corporate social responsibility was important to reputation and brand value, 42% agreed that companies exhibiting good environmental/ social performance would outperform their peers;
* Sixty per cent of the largest fund manager respondents recognised a link to out performance, indicating that many investors should be valuing management teams that seek to improve the performance of their businesses in this area;
* Fifty-six per cent of respondents agreed that consideration of social, environmental and ethical performance will because a significantly important aspect of investment decisions within the next three years.
The survey indicated that most fund managers use a combination of approaches to SRI involving negative screening (screening certain stocks out from portfolios based on CSR criteria); positive selection (selecting specific stocks based on strong or sector-leading performance against CSR criteria); engagement (contacting company boards to influence behaviour in relation to CSR criteria); and shareholder activism (actively using voting power as a shareholder to change behaviour)