Socially responsible investing
(SRI) or social investment, also known as sustainable, socially conscious,
“green” or ethical investing is an investing strategy which seeks to consider
both financial return and social good to bring about a social change. The
concept of SRI suggests that investors would invest in companies that are
acting socially and environmentally responsible ways, and that such investors
would exit from investments in businesses that do not behave in the manner
comfortable with the environmental, social and governance (ESG). Such investors
maintain a balance between financial sustainability and social impact without
necessarily preferring either over the other, i.e. the classic “win-win”
situation.
“Socially Responsible
Investing (SRI) a concept where investors would invest in companies that work
and act socially and environmental responsible ways. SRI seeks to balance
financial return and social good at the same time. The focus remains on
sustainable, socially conscious, green and ethical investing.”
History of Socially
Responsible Investing
Socially responsible investments
tend to mimic the political and social climate of the time. In the 1960s,
investors were mainly concerned with contributing to causes such as women's
rights, civil rights and the anti-war movement. For example, Martin Luther
King, Jr. played a large role in raising awareness for the civil rights
movement by targeting companies that opposed the cause as socially
irresponsible.
As awareness has grown in recent
years over global warming and climate change, socially responsible investing
has trended toward companies that positively impact the environment by reducing
emissions or investing in sustainable or clean energy sources. Consequently,
these investments avoid industries such as coal mining due to the negative
environmental impact of their business practices.
Definition
An investment that is considered
socially responsible because of the nature of the business the company
conducts. Common themes for socially responsible investments include avoiding
investment in companies that produce or sell addictive substances (like
alcohol, gambling and tobacco) and seeking out companies engaged in social
justice, environmental sustainability and alternative energy / clean technology
efforts. Socially responsible investments can be made in individual companies
or through a socially conscious mutual fund or exchange-traded fund (ETF).
While the speculators and
investors alike have made money from stock market, investors have started to
ask themselves whether these investment avenues are aligned to their beliefs
and values and can their capital be deployed in a manner that makes a positive
difference to humanity as well as meet personal financial goals.
Thus was born the Socially
Responsible Investments (SRI) movement. This movement has steadily graduated
from following a merely passive investment approach to one that attempts to
leverage the shareholder's views on issues of interest and put pressure on
firms to behave in a socially responsible manner.
Socially responsible investment
seeks integration of the financial objectives of the investor with his social
values and ethical beliefs. As regards the returns on the investments, the
considerations that help decide in favour or against an investment unit in the
SRI portfolio include screening, shareholder advocacy and community investing.
“Socially responsible
investing (SRI) integrates personal values and social and environmental
concerns with investment decisions.”
Indian Scenario
While the concept of corporate
social responsibility (CSR) in broader terms has now become well-entrenched in
India, the focus on SRI has been far less. However, new calls for SRI in India
are being heard through the route of public interest litigation (PIL) filed
before the courts. The Hindu carries a report indicating that certain Tata
trustees have initiated a PIL seeking divestment on shares held by the
government-owned insurance companies in ITC Limited, due to the latter’s
involvement in the tobacco industry. The plea specifically thrusts light on the
inherent contradiction between the harmful effects of tobacco and their impact
on lifespan (a matter of concern for the insurance industry). This is in
addition to the need for the insurance industry to invest with the primary
objective of public welfare. A report in the Business Standard highlights other
moves towards SRI.
While the route of undertaking
litigation to seek insurance companies’ divestiture from the tobacco industry
appears somewhat unconventional, it brings into focus the issue of SRI in the
Indian context. Ultimately, the concept of stewardship must imbibe within it
not only matters relating to voting on shares, but also the types of
investments that institutional investors may undertake. In addition to the
stewardship responsibilities that have been imposed (as discussed here),
insurance companies (and other institutional investors as well) are likely to
face pressure to invest in a socially responsible manner.
In India, there is a compelling
need to direct investments towards projects and organisations that work with
communities, empower people, create jobs for low-skilled workers, provide
primary education, build up rural infrastructure, and fund products and
innovations that raise the living standards of the people. The Government has
done its bit in the past and is continuing to do so by seeking social returns
from its investment. A good way to start the same in the private sector is through
voluntary proactive compliance. To begin with, the newly reformed pension
sector, insurance companies, mutual funds and other investment advisers should
start by disclosing information on how they vote on a host of proxy issues by
issuing voting guidelines, etc. Companies raising money from the public should
disclose their performance on pre-identified environmental factors and on the
returns to society. This process leads to a higher level of granularity and
helps the investors recognise and benefit from the unlocked SRI return value of
the firm. Producing annual accounts through the EVA (Economic Value Added)
approach
will prove to be one more step in
this direction by India Inc. It is good that leading corporate houses are
contributing and raising the corporate social responsibility culture.
A case of how socially
responsible investments can make a difference is the e-chaupal initiative. The
initiative brings to the farmer better access to markets and information on
agriculture practices and, thereby, better realisation for their produce. This
breaks the shackles of fragmented land holdings, poor infrastructure, and
numerous intermediaries required to bring the produce to the markets.
The company that was once
perceived to be largely engaged in tobacco business, an activity defined as
negative by some SRI practitioners, has done positive SRI work.
However, for the SRI movement to
strike deep roots, there is an urgent need to create a greater level of
awareness among the growing class of educated investors who may be willing to
see their investments make a sustained difference to society while meeting
their long-term financial objectives. With the economy on a roll and increasing
awareness among investors, it would be interesting to see how the SRI movement
progresses in India.
Main Pillars of SRI
A broad assessment of leading
companies indicates that environmentally and socially responsible companies are
usually also the better-managed ones.
There are, of course, plenty of
exceptions to this rule, but large corporations are often run by professional
managers who have a reputation to protect, and hence they are hesitant to take
decisions that may be seen as unethical or socially exploitative.
Investment companies should
perceive the social expenses of these companies as capital expenditure which
will yield benefits in the future. This will result in a proper valuation of
these companies. Should the companies realise better-than-expected profits,
those who invested by understanding this aspect of social benefit will gain.
Conclusion
SRI seeks to balance financial
return and social good at the same time. The focus remains on sustainable,
socially conscious, green and ethical investing. Through investment vehicle of
SRI, effort is made to promote and support companies who practice environmental
stewardship, social justice, social development, human rights, gender equality,
good corporate governance and diversity among others. In brief, SRI includes
investors who apply various environmental, social and governance (ESG) criteria
in their investment analysis and selection.
While globally SRI has
emerged as one of most powerful trends among the investment community of the
developed world, concept is still in a nascent stage in India. Forget full
fledged SRI, even good corporate governance and transparent financial reporting
are not yet very prevalent among Indian corporate. Enter “socially responsible
investment” in Google search engine, you will get more than 4.5 million
results. Now enter “socially responsible investment in India” in Google search
engine, you will not even get one million results and even then most of the
results are not indicating at Indian origin. One noticeable result was though
socially responsible equity investment programme at Yes Bank known as “Tatva”. Well,
leave Google results here itself and move on to socially responsible investment
in India.
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