October 17, 2003
SRI Growing Amongst European Institutional Investors and in Asian Emerging Markets
by William Baue
Two new reports document the status and prospects of sustainable and responsible investment in
Asian emerging markets and with European institutional investors.
Two reports released this week document the current state and growth of sustainable and responsible
investment (SRI), also known as socially responsible investment, globally. Today, the European
Sustainable and Responsible Investment Forum (Eurosif) published a report on SRI practice by institutional
investors in eight European countries. Yesterday, the Association for Sustainable and Responsible
Investment in Asia (ASrIA) issued a report on
SRI in seven of Asia's emerging markets.
The reports reveal some commonalities in
these different regions, but also, not surprisingly, some clear distinctions. Both reports find
variability in how SRI is practiced and defined.
"Essentially there is no hard and fast
answer to the question of the appropriate forms of SRI for Asia," writes David St. Maur Sheil, the
director of AsrIA. Mr. St. Maur Sheil acted as project manager for this report, entitled SRI in
Asian Emerging Markets.
Although SRI is much more advanced in Europe, it is no
monolithic entity there either.
"There is no single definition of SRI from a pragmatic
point of view," states the Eurosif report,
entitled Socially Responsible Investment among European Institutional Investors: 2003
Report. "Rather, there are layers."
The report, which covers Austria, France,
Germany, Italy, the Netherlands, Spain, Switzerland and the United Kingdom, identifies three layers
of SRI practice. The first layer consists of "core" SRI practices, namely elaborate positive
screens and extensive negative ones. Eurosif estimates that 34 billion euros are under management
in this layer. Adding the next layer, simple exclusions such as those practiced by almost all
Dutch pension funds that screen companies involved in tobacco, for example, or operating in
Myanmar, brings the assets under management to 218 billion euros. Adding shareowner engagement,
which is predominantly practiced by UK pension funds, brings the total amount under management to
336 billion euros, according to the Eurosif report.
"[E]ven if contrasts exist from
nation to nation, European SRI is showing signs of entering the financial mainstream," said Matt
Christensen, executive director of Eurosif.
The Eurosif report, which was supported by the
European Commission (EC),
posits two "visions" of where SRI stands in Europe: that it is a growing but niche market; or the
preferred version, that it is mainstreaming. To substantiate the latter interpretation, Eurosif
points to the fact that nearly a quarter of all assets under institutional management in the UK
engage with companies over social, environmental, or ethical (SEE) issues. This level of
acceptance portends of widespread acceptance and practice of SRI in the future, according to
The reports diverge in several ways.
First, the Eurosif report does
not consider retail SRI, since it is so well developed in Europe and hence well researched. The
ASrIA report, on the other hand, focuses on the retail market, particularly non-traditional retail
investors, who may serve as primary drivers of growth in SRI in emerging markets.
the Eurosif report does not consider community investment and micro-finance, as only France, Italy,
and Spain include these practices in the definition of SRI. Conversely, the ASrIA report
identifies microfinance, which originated in India with the establishment of the Grameen Bank in
Bangladesh, as a key element advancing SRI in Asian emerging markets.
Third, while the
Eurosif report acknowledges the roots of European SRI in the Methodist Church's application of
screens excluding "sin stocks" in the UK in the 1920s, it identifies the trajectory of SRI toward
sustainability investment. Sustainability is also a primary force behind SRI development in Asian
emerging markets, but so too is religious investing, particularly Islamic funds. The ASrIA report,
which was supported by the International Finance Corporation (IFC), the private sector arm of the World Bank Group, notes that the
Malaysian government has taken steps to promote the country as a hub of Islamic investment.
Although many distinctions exist between SRI in Asian emerging markets and amongst European
institutional investors, the two spheres may prove symbiotic.
"[There is] no doubt that
the introduction of SRI into Asian markets will cause new forms of SRI to emerge, widening and
broadening the debate on what values, screens and approaches are most effective in each market, and
even feeding new energy back into the more established global SRI markets and the wider SRI
dialogue," writes Mr. St. Maur Sheil in the ASrIA report.