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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 SRI.

"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.

"The 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.

"In 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.

 

 
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