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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 Eurosif.

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.

Second, 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.


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