The Future of SRI
As more people and more money get poured into Socially Responsible Investing (SRI), it becomes increasingly likely that the call for global standards, regulation and corporate disclosure will increase as well.
In the 2010 Annual Report of the Washington, D.C.-based Investment Company Institute, President and CEO Paul Stevens said investors will continue seeing changes spurred by recent financial crises.
“The wide-ranging reforms around the world emphasize the need for us to think about international aspects of fund investing,” Stevens said, noting that the International Organization of Securities Commissions is working toward increased regulatory standards.
“Policies set in one jurisdiction can have a significant influence elsewhere,” he added. “We need to stay abreast of these international developments and make sure that all regulators recognize the impact of their decisions.”
Similarly, a 2009 study of emerging market investment by the Social Investment Forum, a membership association, found that one of the biggest challenges is a lack of corporate disclosure about environmental, social, and governance (ESG) issues.
“Key drivers for improved ESG disclosure include development of national sustainability indices, ESG listing requirements, [and] influences of global standards and norms,” the report said.
The survey shows that Brazil, South Africa, China, South Korea, India and Taiwan are actively pursuing disclosure improvements.
Meanwhile, Ghiyath Nakshbendi, executive-in-residence in Kogod’s International Business department, said the International Monetary Fund and World Bank call for developing countries to continue enjoying higher economic growth than the U.S. and developed nations.
Nakshbendi said he also predicts growth in microfinancing, which will enable more investors to participate in these small loans to citizens of developing nations.
“The field is evolving,” he said. “We are at the stage at which these microfinance operations are getting more and more involved in acting as deposit-taking institutions, so in a sense we are broadening the source of funding. We are going to go through a process by which we have more and more nationally accepted practices, but we are not there yet.”
Steady international support also is likely for the United Nations’ Principles for Responsible Investing, issued in 2006 to reflect the agency’s support of ESG standards. According to the UN, a record number of investors committed to the principles in 2010, a trend that shows no signs of slowing. As of October, 800 investment institutions from 45 countries had become signatories.
Closer to home, companies and investors who value socially responsible business practices may see new developments in Maryland, which in 2010 became the first state to create a new class of corporation, the Benefit Corporation.
The designation is modeled on social and environmental criteria created by the nonprofit B Lab. Essentially, the designation gives protection to companies doing good things who might have those actions challenged by a change in management or ownership.