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.
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
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.
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.
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 SocialFunds.com. "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."