December 06, 2005
Australian Report on Globalization of the Mainstreaming of Socially Responsible Investing
by William Baue
New report examines how governments worldwide promote the mainstreaming of SRI, focusing on
Australian policy options in a way that exemplifies issues facing other governments.
The mainstreaming of socially responsible investment (SRI), which comprises both the top-down
adoption of SRI strategies by mainstream investment firms as well as the bottom-up growth of
traditional SRI into the mainstream, is going global. This mainstreaming largely has been driven
by the markets. To what degree does government have some role to play as well?
Researchers at the Institute for Sustainable Futures (ISF) of the University of Technology, Sydney (UTS) posed this question, which they answered in
a three-pronged report. First, they outline
international policy approaches to the mainstreaming of SRI; second, they review the policy
situation in Australia; and third, they survey the opinions of the Australian investment and
corporate stakeholder communities. While it may seem that the first section is the only one of
relevance to an international audience, the second two sections offer very interesting examples for
navigating the particularities of national policy in encouraging governments to spur the uptake of
"The opportunity exists for government to create meaningful change by removing
existing impediments to SRI and providing incentives to mainstream the practice of including
social, environmental, ethical, and governance criteria in investment decision making," state
report authors Alana George, Nick Edgerton and Tom Berry.
The report notes that the
enactment of policy does not always ensure implementation, however. For example, the UK Pensions
Act of 1995 (amended a decade later) requires
pension funds to disclose the extent to which social, environmental, and/or ethical (SEE)
considerations impact investment decisions (if at all), though it does not require an explanation
of the method of implementation.
"Thus, there appears to be a significant variation
between the number of pension funds who have a stated SRI policy and the number that actually
implement it," state the report authors.
Likewise, the Australian Securities and
Investments Commission (ASIC)
released compulsory guidelines in December 2003 that work in tandem with the Financial Services
Reform Act (FSRA) of
2001 to require disclosure of how SEE considerations inform investment decisions.
ASIC guidelines take a non-prescriptive approach and neither defines what constitutes an
environmental or social consideration, nor how they should be taken into account," states the
report. "The guidelines effectively allow product issuers to determine the 'quantity, format, and
accuracy of SRI disclosure.'"
"Because of this, some argue that they have failed to
support the legislation's aim to promote 'transparency, accuracy, comprehensibility, and
comparability,'" the report authors add. "This sentiment backed by findings from our survey."
Indeed, almost half (46 percent) of respondents were "doubtful" that FSRA has achieved this
purpose, with another quarter (25 percent) "strongly doubtful." The survey elicited 45
respondents, with most (46 percent) from the finance and investment sectors, more than a third (35
percent) from related research or consultancy organizations, and the rest from private businesses,
nongovernmental organizations (NGOs), and media outlets.
The report notes how the
Australian investment and business climate differs from its counterparts worldwide.
Australia, investment activity is currently shaped and directed by its regulatory framework more
than by external stakeholder pressure," write the report authors. "Furthermore, compared to other
countries, Australian business traditionally responds to threats of punitive action more so than to
incentives when it comes to changing their behavior."
"As such, the nature of government
involvement has so far been typified more by compliance-based legislation than by incentives that
reward positive corporate behavior," the researchers continue.
The report notes that the
Australian government is studying how best to induce corporate social responsibility (CSR),
weighing the balance between regulatory requirements, voluntary incentives, and market-based
inducements. The stu
dy requested of the Corporations and Market Advisory Committee (CAMAC) by the Parliamentary Secretary to the
Treasurer, released after the publication of the Institute for Sustainable Futures, maps
possible paths to navigate this balance.
The Australian situation can serve as a template
for other regulation-driven national markets. That said, the Australian example of grappling with
the balance between regulation, voluntary corporate action, and market-based solutions can also be
instructive to governments and SRI advocates the world over.