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November 19, 2004
European Socially Responsible Investment Firms Let the Sun Shine In
by William Baue
The European Social Investment Forum releases transparency guidelines covering seventeen socially
responsible investment practitioners.
SocialFunds.com --
Long before Natural Capital Institute
founder Paul Hawken issued his report criticizing the socially responsible investment (SRI) sector
for lack of transparency, the European Social Investment Forum (Eurosif) was drafting SRI Transparency
Guidelines. After testing the pilot version for a year and a half, Eurosif released the official
version of the guidelines last week. Guideline signatories include seven SRI practitioners
from the UK (including F&C Asset Management
and Henderson Global Investors), nine
from the Netherlands (including funds managed by ABN AMRO and ING), and one from Italy (Banca Etica). Pilot-version users include seven SRI
practitioners in German-speaking countries, including Bank Sarasin.
 "The Dutch SIF, VBDO, did an excellent job in starting this effort in 2002, and
Eurosif has now broadened it to include all of Europe," said Matt Christensen, executive director
of Eurosif. "The Guidelines should not only help with the continuing professionalisation of the
SRI sector, but also serve as a model for the financial community in Europe and abroad."
The purpose of the guidelines is to increase SRI firms' accountability to consumers and to
clarify firms' approaches to SRI, which can vary widely across a range of social and religious
beliefs. SRI firms also employ a variety of screening practices, ranging from negative screens
that exclude "sin" sectors such as tobacco to best-in-class, which limit investment in "dirty"
sectors such as oil and gas to companies with best practice on sustainability.
The
guidelines were also created to "pre-empt potential regulation that could be enacted without the
involvement of the greater SRI community," according to Eurosif. The guidelines are broken into
seven sections: basic details, SRI investment criteria, research process, evaluation and
implementation, engagement approach, voting policy, and periodical activities. The degree of
specification is quite detailed, anticipating the degree of depth different stakeholders may want
to examine SRI policies and practices.
For example, investors who value independence may
wish to know whether the research process has an external control or external verification process
is in place, so the guidelines ask SRI firms to disclose this. Companies may wish to see their
profiles and analyses to confirm that they do not contain misinformation, so the guidelines ask if
SRI firms grant this access. The research process section also asks what research findings are
disclosed to the public, and how.
Many SRI investors wonder whether the portfolio
companies actually reflect the values stated in SRI funds' prospectuses. The evaluation and
implementation section asks SRI firms "what internal or external measures are in place to ensure
portfolio holdings comply with SRI investment criteria," which are to be clearly defined in the
section so-named.
The engagement approach and voting policy sections ask for detailed
information on shareowner action policies. For example, investors who wonder what results
shareowner activism campaigns can find out, as the former section asks how the effectiveness of
engagement activity is monitored and addressed. And whereas US mutual funds must disclose their
proxy voting policies and records to comply with new Securities and Exchange Commission (SEC)
regulations, European law lacks such teeth, enhancing the importance of voluntary voting policy
disclosure.
Indeed, the Transparency Guidelines as a whole are a voluntary initiative, and
the various country-level social investment forums will individually decide whether to use
self-policing or third party verification to confirm guideline compliance. Eurosif will create a
logo for use by SRI funds and firms that use the transparency guidelines.
With
expectations of transparency growing, the Eurosif initiative may spawn imitation. "I expect to see
this initiative to feed similar efforts in other countries over time," said Mr. Christensen.
The US Social Investment Forum (SIF)
does not have a similar initiative, according to SIF President Tim Smith, though he notes that SIF
members already practice a high degree of transparency.
"If you look at the websites and
prospectuses of the leading SRI mutual funds in the US such as Calvert, Domini, Pax, and others,
you will find many of the same bases covered" as the Eurosif Transparency Guidelines, Mr. Smith
told SocialFunds.com. "I don't believe there's a huge vacuum on this side of the ocean just
because such standards don't exist here, though I do take the point that Eurosif has raised the
question whether there should be stated standards for the whole industry in the United States."
©
SRI World Group, Inc. All Rights Reserved.
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