Tuesday, 14 June 2011

Investing Morally: ESG and SRI Ain't Easy or Simple

"The BP disaster fits very well here. The company was ranked best-in-class by many socially responsible funds and indices such as FTSE4Good and the Dow Jones Sustainability Index. The disaster really highlights some of what the ESG industry is actually rewarding right now, which is the transparency and reporting found in glossy reports." Thomas George, Co-manager of the TD Sustainability Fund, quoted in Benefits and Pension Monitor, September 2010

"... bcIMC tried for a decade, if not more, to make changes at a macro level. We recently reduced our investment exposure to the Japanese market because we found there just did not seem to be an appetite or a willingness to bring fair and reasonable practices into its public equity market. ... That decision about Japan was very much a difficult one to make, but it was largely based on governance concerns." Susan Enefer, Manager of Shareholder Engagement, BC Investment Management Corporation in the same magazine issue

Not even the pros who specialize in SRI (Socially Responsible Investing) and ESG (Environmental, Social and Governance) find it easy it seems. The bottom line from the magazine roundtable's article is that making PRI and ESG a core part of the investment process is: a) in its infancy, but the way of the future, b) a worthwhile risk-reduction effort, c) successful only by digging below the surface stats.

As it happens, my SRI stock pick, Waterfurnace International (WFI), gets a middling rating on governance from the Clarkson Center for Business Ethics and Board Effectiveness of the U of Toronto Rotman School. WFI got only a 77 score out of a 100 in the small and medium company 2010 report. Its main deficiencies have to do with lack of a regular and formal process to assess the Board and its members, as well as too little Board member independence. There are always compromises. ...

1 comment:

Iain from Smart Dividend Growth said...

I think it is short investors need to understand morally is a very subjective concept. BP is an excellent example, some may thing the company is horrible and only out for the bottom line while others believe that the oil disaster in the gulf was simply a horrible accident. However through all my research I believe that investing based on morals will lead to smaller returns.

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