January 31, 2006
Two Sides of the Same Coin: Surveys Track Growth of Interest in SRI and CSR
by Bill Baue
Part one of this two-part article focuses on a survey by Mercer Investment Consulting on increasing
interest from institutional investors in socially responsible investing.
There is a growing body of evidence of rising interest in social responsibility in the marketplace.
On the one hand, a survey by Mercer Investment Consulting of US
institutional investors finds increasing interest in socially responsible investing (SRI). On the
other hand, a McKinsey
survey of corporate executives globally finds mounting commitment to corporate social
responsibility (CSR). The fact that these surveys find essentially the same pulse for SRI and CSR
should come as no surprise, as the two are like twins, separate entities with distinct identities
but common origins and parallel paths.
Focusing on the cascade of survey numbers
can blur the eyesight, but stepping back to see the interrelationships between statistics can
clarify the significance of the results. For example, three-quarters of the 183 US institutional
investors canvassed in the Mercer survey believe that environmental, social, and governance (ESG)
factors can be material to investment performance.
"But overall, less than half of the
survey participants have assessed or intend to assess the ESG capabilities of their internal or
external investment managers," states the survey report, written
by Jane Ambactsheer, global head of Mercer's Responsible Investment
In other words, more than a quarter of respondents who think ESG
factors can impact financial performance have no intentions to gauge the ESG analysis capacity of
their money managers. Similarly, almost three quarters of respondents (72 percent) do not practice
SRI and do not have any plans to do so, despite the fact that SRI encompasses the analysis of ESG
factors. How do these fiduciaries intend to harness the material opportunities or guard against
the material risks presented by environmental, social, and governance issues? The survey does not
answer this question.
However, the survey does identify rationalizations for not
practicing SRI. More than 80 percent of respondents believe it would reduce returns or increase
risk to incorporate an investment approach that factors in ESG issues. Presumably, at least some
of these respondents must have also been amongst those who felt ESG issues can have a material
impact on performance. It defies explanation how fiduciaries can hold such seemingly contradictory
beliefs--that ESG factors can impair financial performance and that addressing ESG factors can
impair financial performance.
"Respondents' views about socially responsible investing are
clearly polarized, with SRI's potential impact on risk and returns seen as both a driver and a
barrier," says Ms. Ambachtsheer. "This may be because, in its early stages, SRI decision making
centered on negative screening techniques that reduced the universe of investments under
"Reducing, on nonfinancial grounds, the eligible number of securities in
the investible universe is generally not viewed as an optimal solution by institutional
fiduciaries," she adds.
Two SRI strategies that do not require negative screening--namely,
active proxy voting and shareowner engagement with companies--appear poised to grow. About a
quarter of respondents indicated intentions to increase their involvement in each of these
activities in the next two years.
Another survey finding that is difficult to explain is
the ranking of climate change as the least important of 12 ESG issues enumerated in the question,
with corporate governance ranking first.
"Given that institutional investors around the
world have rallied around climate change as a relevant investment risk, this may come as a risk,
but securities prices have been immediately impacted by corporate governance scandals, while
climate change has yet to have as profound an effect on securities prices," Ms. Ambactsheer
The final survey questions address minority and female-owned or emerging (MFOE)
managers (with "emerging" referring to managers with less than $500 million in assets under
management.) While a majority of respondents consider allocations to MFOE managers to fall under
the SRI umbrella, respondents commit scant assets (17 percent to minorities and 14 percent to
women) to these managers. Even more surprisingly, almost three quarters of respondents have no
intention of considering either minority or women managers. While these fiduciaries firmly believe
in portfolio diversification, they seem less committed to portfolio manager diversity.
Part two of
this two-part article focuses on a McKinsey Quarterly survey of corporate executive globally
that finds increasing commitment to corporate social responsibility.