March 09, 2004
Report on SRI Research Organizations Characterized as Valuable But Also Controversial
by William Baue
A recent report from SustainAbility, onValues, and Mistra provides valuable insight on SRI research
organization methodologies but lacks some needed transparency.
Socially responsible investing (SRI) research organizations evaluate corporate social and
environmental best practice, in part based on data obtained through questionnaires filled out by
the companies being assessed. A recent report, entitled
Values for Money: Reviewing the Quality of SRI Research, turns the tables. It identifies
what it considers to be SRI research best practice based on a questi
onnaire filled out by the SRI research organizations being evaluated.
report recommends that, to survive and thrive in the marketplace, SRI research organizations must
adopt so-called "second generation" research approaches correlating the materiality of social and
environmental performance to financial performance. The report also calls for greater
transparency, suggesting that SRI research should be independently reviewed and verified.
"The report was intended to be a helpful reality check in terms of where best practice has
gotten to, and was very much intended to build on that best practice," said lead author Seb Beloe,
director for research and advocacy at SustainAbility. SustainAbility, a London-based
business strategy and sustainable development consultancy, produced the report with onValues, a Zurich-based investment research
consultancy, and Mistra, the Swedish Foundation
for Strategic Environmental Research.
Values for Money assesses 15 SRI research
organizations and identifies best practice in six categories: research methodology, quality of
information sources used, quality of research processes, quality of the research team, client
service quality, and transparency. The report praises Zurich-based SAM Sustainable Asset Management for best practice in four
categories, New York-based Innovest
Strategic Value Advisors in two, and several other firms in one category. It identifies no
best practice firms for two categories: quality of research team and client services quality.
The report was widely admired by SRI research organizations as a valuable contribution to the
field. There are few similar studies that comprehensively compare the research methodologies
employed by SRI research firms, and the firms can use the study to identify potential areas of
The report did, however, engender some controversy. The report calls on SRI
research organizations to disclose potential conflicts of interest when providing services to
companies they also assess and rate in order to "ensure independence" and "maximize transparency."
Critics note that the report itself did not follow this course of action regarding the reportís own
"The study should have been carried out by authors who do not have any link with
the analysed organizations," said Marnie Bammert, head of corporate communications for Munich-based
Oekom Research, which the
report lauded for best practice in research processes.
The report attributes "research and
writing" to Mr. Beloe, Jan Scherer, a SustainAbility analyst, and Ivo Knoepfel, the founder and
managing partner of onValues. Mr. Knoepfel was formerly head of rating and index research at SAM,
where "he was responsible for developing SAM's research and investment processes," according to his
onValues bio. The
Values for Money report does not disclose this connection. Mr. Knoepfel therefore had a
hand in assessing the very research processes he developed.
Mr. Scherer, one of the
report's other co-authors, was hired by London-based CoreRatings in January 2004, according to his CoreRatings bio.
Values for Money, which praises CoreRatings for best practice in research methodology, did
not disclose this information.
Other criticisms of the report revolve around its
insistence on establishing the financial materiality of social and environmental issues.
"It's in this concession to economics as the sole justification for SRI that I most fault the
study," said Peter Kinder, president of Boston-based KLD Research & Analytics. "The study's focus dictates its
conclusion: social research firms should look more like financial research analysts."
The report does not identify KLD as a best practice SRI research organization according to its
criteria. Ironically, KLD's exclusive focus on social and environmental issues happens to
correlate with financial outperformance. The KLD Domini 400 Social Index has generated annualized
returns of 12.12 percent over the past decade ending February 29, 2004, while S&P 500 returns over
the same period are 11.36 percent.
"SRI can be expressed or explained in terms of
investment performance, but SRI need not justify itself in those terms," Mr. Kinder told
SocialFunds.com. "SRI was not founded on an economic proposition or to vindicate an economic model
but rather as a statement of ethics, of an aspiration."
Peter Kinder has written a paper relevant to this article entitled "Values
and Money: A Research Practitioner's Perspective on Values for Money" please click here to read it (PDF format).
To the Editor:
For the sake of clarity, we would like to stress
that Ivo Knoepfel and onValues did not participate in the assessment of research organisations, as
the article wrongly states ("Mr. Knoepfel therefore had a hand in assessing the very research
processes he developed"), but only contributed to designing the methodology which in turn was
reviewed by an independent Selection Committee. The relative roles of the different organizations
are described in full transparency on page 6 of the report.
We fully agree with Mr. Kinder that
"SRI can be expressed or explained in terms of investment performance, but SRI need not justify
itself in those terms". This study, though, has focused on a specific goal stated on page 5 of the
report: "Öto help SRI research organisations and the wider SRI community to become more effective
in addressing and influencing mainstream investment decision making". The resulting focus on
material impacts on investment value must therefore be understood as a result of this stated goal.
It is true that other approaches to assessing SRI research quality would change the results of the
Director of Research and Advocacy,