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November 19, 2004
European Socially Responsible Investment Firms Let the Sun Shine In
    by William Baue

The European Social Investment Forum releases transparency guidelines covering seventeen socially responsible investment practitioners.

Long before Natural Capital Institute founder Paul Hawken issued his report criticizing the socially responsible investment (SRI) sector for lack of transparency, the European Social Investment Forum (Eurosif) was drafting SRI Transparency Guidelines. After testing the pilot version for a year and a half, Eurosif released the official version of the guidelines last week. Guideline signatories include seven SRI practitioners from the UK (including F&C Asset Management and Henderson Global Investors), nine from the Netherlands (including funds managed by ABN AMRO and ING), and one from Italy (Banca Etica). Pilot-version users include seven SRI practitioners in German-speaking countries, including Bank Sarasin.

"The Dutch SIF, VBDO, did an excellent job in starting this effort in 2002, and Eurosif has now broadened it to include all of Europe," said Matt Christensen, executive director of Eurosif. "The Guidelines should not only help with the continuing professionalisation of the SRI sector, but also serve as a model for the financial community in Europe and abroad."

The purpose of the guidelines is to increase SRI firms' accountability to consumers and to clarify firms' approaches to SRI, which can vary widely across a range of social and religious beliefs. SRI firms also employ a variety of screening practices, ranging from negative screens that exclude "sin" sectors such as tobacco to best-in-class, which limit investment in "dirty" sectors such as oil and gas to companies with best practice on sustainability.

The guidelines were also created to "pre-empt potential regulation that could be enacted without the involvement of the greater SRI community," according to Eurosif. The guidelines are broken into seven sections: basic details, SRI investment criteria, research process, evaluation and implementation, engagement approach, voting policy, and periodical activities. The degree of specification is quite detailed, anticipating the degree of depth different stakeholders may want to examine SRI policies and practices.

For example, investors who value independence may wish to know whether the research process has an external control or external verification process is in place, so the guidelines ask SRI firms to disclose this. Companies may wish to see their profiles and analyses to confirm that they do not contain misinformation, so the guidelines ask if SRI firms grant this access. The research process section also asks what research findings are disclosed to the public, and how.

Many SRI investors wonder whether the portfolio companies actually reflect the values stated in SRI funds' prospectuses. The evaluation and implementation section asks SRI firms "what internal or external measures are in place to ensure portfolio holdings comply with SRI investment criteria," which are to be clearly defined in the section so-named.

The engagement approach and voting policy sections ask for detailed information on shareowner action policies. For example, investors who wonder what results shareowner activism campaigns can find out, as the former section asks how the effectiveness of engagement activity is monitored and addressed. And whereas US mutual funds must disclose their proxy voting policies and records to comply with new Securities and Exchange Commission (SEC) regulations, European law lacks such teeth, enhancing the importance of voluntary voting policy disclosure.

Indeed, the Transparency Guidelines as a whole are a voluntary initiative, and the various country-level social investment forums will individually decide whether to use self-policing or third party verification to confirm guideline compliance. Eurosif will create a logo for use by SRI funds and firms that use the transparency guidelines.

With expectations of transparency growing, the Eurosif initiative may spawn imitation. "I expect to see this initiative to feed similar efforts in other countries over time," said Mr. Christensen.

The US Social Investment Forum (SIF) does not have a similar initiative, according to SIF President Tim Smith, though he notes that SIF members already practice a high degree of transparency.

"If you look at the websites and prospectuses of the leading SRI mutual funds in the US such as Calvert, Domini, Pax, and others, you will find many of the same bases covered" as the Eurosif Transparency Guidelines, Mr. Smith told "I don't believe there's a huge vacuum on this side of the ocean just because such standards don't exist here, though I do take the point that Eurosif has raised the question whether there should be stated standards for the whole industry in the United States."


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