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Socially Responsible Investing
Transcript of Socially Responsible Investing
SRI Investment Strategies
exclusion of companies from the investment universe on the basis of criteria relating to their products, activities, policies or performance: i.e.
sector-based screening, norms-based screening, values-based screening
preferential investing in companies with exceptionally good ESG performance
selection of assets according to investment themes: i.e.
climate change, demographic trends
the use of formal shareholder rights and informal dialogue to encourage companies to improve their management systems
finance projects or institutions that will serve poor and underserved communities
Responsible Investment (SRI)
Corporate Governance (ESG)
criteria into investment decisions.
Reasons behind SRI:
Risk & Opportunities
a better understanding of
operating efficiency, product development, corporate culture, corporate governance, geographic diversification
2005 Freshfields Report -
ESG factors are material and should be taken into account
a fund with diverse holdings representative of the entire economy (i.e. Norway Pension Fund Global). An externality produced by one company may be a cost for another (i.e.
production and consumption patterns need to take into account
demographic changes, and resources constrains
SRI recognizes that business success
depends on healthy ecosystems, sound societies.
Financial benefits are an outcome
rather than a cause of wealth creation.
SRI is about financial democracy:
can shape the market by
money with ESG in mind.
SRI promotes sustainable development
integral human development
by influencing consumption and production patterns.
going beyond economic profitability. We need social and environmental profitability as well.
SRI is strictly related to the challenge of sustainable development:
how do we provide a dignified living to 9 billion people respecting environmental limits of the planet?
Source: McKinsey Global Survey,
Valuing corporate social responsibility
Global Sustainable Assets
Growth of SRI Assets by Region
BP Citations at US Refineries
BP Oil Spill Effect on Stock Price
April 2010: the explosion of a BP offshore oil platform in the Gulf of Mexico
Largest marine oil spill in history: 4.9 million barrels.
11 people were killed, 17 seriously injured
$3 bln losses in Gulf tourism
$2 bln damage to fishing industry
Over $40bln legal settlement
$70 billion damage to oil extraction industry
$20 billion in forgone tax revenue
Massive erosion of marine and wildlife habitats
OSHA had previously fined BP:
2005: Texas City refinery fire:
$50 million fine
Killed 15; Injured 170.
2006: Alaskan oil spill caused BP to be placed on probation for
87 million fine
for failure to correct problems at Texas City facility
Within 2 months after spill, stock price had declined 55%. Source: RI Academy
Comparing Performance: DJSI World, S&P 500, and MSCI KLD 400
Islamic Financial Markets
Vice fund vs. Dow Jones vs. Azzad Ethical Fund
Over ten years, vice fund outperforms all others.
Dow Jones and ethical funds are comparable.
Where does it come from?
Rejection of slave trade.
Religious communities in the US refuse to invest in companies and banks supporting slave trade
Anti-Vietnam War Movement.
Investors exclude companies that produce napalm and other chemical weapons
Investors divest from companies that profited from apartheid policies in South Africa
UN Principles of Responsible Investment.
financial arm of the UN Global Compact
pollution, biodiversity loss, climate change, deforestation, land degradation, resource depletion, waste management
human rights, conflict regions, labor standards, product safety, demographic trends
board composition, CEO duality, bribery, audit committee structure, accounting practices, executive remuneration, disclosure, lobbying, business ethics, stakeholder dialogue, government relations
Source: The UN Environment Program Finance Initiative
BP Deepwater Horizon
Oxford University & Arabesque Partners Mang (Sep. 2014): a review of
190 studies on sustainability and profits
90% of studies: corp sustainability =
lower the cost of capital
88% of studies: corp. sustainability =
better operational efficiency
80% of studies: corp. sustainability =
better stock performance
M. Bazela, PhD, IPADE Business School
Global Alliance for Banking on Values
Founded in 2009
Independent network of banking institutions
28 members in 31 countries
$100 billion assets under management
20 million customers
Mission: use finance to deliver sustainable economic, social and environmental development
Opinion Polls About Guns & Fracking