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June 06, 2006
Bank of China International Investment Managers Launches First SRI Fund in China
    by Bill Baue

The fund combines quantitative screening with qualitative assessment on issues such as corporate governance and social responsibility, but it is unclear how it will handle human rights.

While socially responsible investing (SRI) has been globalizing of late, it had yet to crack the market in China, home to one fifth (1.3 billion) of the world's population of 6.5 billion. That changed last month when Bank of China International Investment Managers (BOCIIM) launched the Sustainable Growth Equity Fund, the first SRI fund in China.

"The fund emphasizes not only financial performance and earnings growth, but also sustainability of the business model, corporate governance, corporate strategy, and attitude toward social responsibility," said Wu Jun, vice president and deputy CIO of BOCIIM. "Through the act of investment, we believe it is possible to promote positive and socially responsible corporate behavior on the one hand and achieve long term capital appreciation for investors on the other hand."

"There is a lot of support building here in China for investment that benefits society, as well as earning good commercial returns," added Mr. Wu, who also manages the fund, heading a team of 13 analysts. "We expect to see SRI become increasingly prevalent."

Introducing the concepts of sustainability and social responsibility into the vast financial markets in China represents a necessary step in advancing sustainable development, as consumers in China are already well on their way to adopting developed market material appetites. Robert Rubinstein, CEO of Brooklyn Bridge and TBLI Group, which recently hosted the TBLI Conference in Bangkok where Mr. Wu announced the launch of the fund, calculates that China will reach the same consumption levels as the US by 2031.

"At current productivity levels China will need more than the entire world production of oil and coal," Mr. Rubinstein said. "It's difficult to see how that can be achieved at all, never mind achieving it sustainably."

"Clean tech and socially sustainable investment will be absolutely crucial for China's future development," he added.

In addition to the environmental sustainability challenges posed in China, the country also presents significant social sustainability challenges, particularly around human rights. Mr. Wu did not respond to questions from inquiring about what SRI criteria the fund will employ, and how it will weight various issues. However, SRI criteria vary from market to market--for example, Japanese SRI funds tend to focus on environmental issues and place less weight on social issues. It is unclear if or how the fund will employ human rights screens, given that its universe of mainland "A" shares companies operates in China, where legal protections for human rights are less stringent than in developed countries.

The fund benchmarks its performance predominantly (85 percent) to the MSCI China "A" Shares Index, with the remaining 15 percent tracking the Shanghai Government Bond Index. The fund's asset allocation is fixed at a minimum of 60 percent (and a maximum of 95 percent) of its Net Asset Value in equities, with the remainder in cash or cash equivalent such as treasury notes.


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