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February 06, 2002
Swedish Foundation Reports on Socially Responsible Asset Management and Research
    by William Baue

MISTRA, a Swedish environmental research foundation, recently released a report that assesses asset managers and research firms as its first step toward adopting socially responsible investing principles.

Many people oppose corporate globalization because of the perceived association with unacceptable business practices such as sweatshop labor and environmental degradation. However, the globalization of more positive initiatives, such as socially responsible investing (SRI) and sustainability, may be a good thing. The notion of socially responsible investing originated in the United States, but it is now practiced in a number of countries around the world.

Recently, the Swedish government's environmental research foundation, MISTRA, commissioned a report to assess the providers of SRI products and research in the U.S. and Europe. The report resulted from MISTRA's desire to shift its portfolio from traditional investments to SRI investments in an effort to align the foundation's assets with its environmental and social values.

"Since we support environmental research for sustainability, our board decided last year that we should have a vision that our assets should work in the same direction," said Eva Thörnelöf, MISTRA's deputy director for asset management and administration.

In early 2001, MISTRA decided to investigate the impact on financial performance of using environmental and social criteria in investment decisions. MISTRA commissioned Sweden-based KPMG Consulting to evaluate the economic implications of shifting MISTRA's portfolio of Skr 4 billion (about $US 400 million) from traditional investments to socially responsible investments.

"[KPMG's] conclusion was that although existing literature is limited it nevertheless indicates that the financial returns and risk levels are not affected negatively by adding SRI-criteria," the report states.

MISTRA next commissioned Sweden-based Miljöeko AB and UK-based SustainAbility to produce a report assessing the quality of existing products and services in the socially responsible investing arena. MISTRA based its understanding of socially responsible investing primarily on SustainAbility's earlier report, A Responsible Investment?--an overview of the Socially Responsible Investment Community.

The MISTRA-commissioned report, entitled Screening of Screening Companies, identifies three best-practice SRI managers, based on MISTRA's social and environmental criteria. The managers named are UK-based Henderson/NPI, Norway-based Storebrand Asset Management, and US-based Trillium Asset Management. In addition, the report identifies the two best providers of SRI research and analysis: Belgium-based ETHIBEL/Cordius Asset Management and US-based Innovest.

The theory and practice of SRI, which is more widely accepted in the U.S., differs somewhat from sustainability, which is more popular in Europe. Socially responsible investing focuses on investing only in companies and industries that are socially responsible and environment-friendly. With this form of SRI, investments in entire industries may be decided against. Sustainability investing, on the other hand, uses a "best-of-class" approach. Companies are chosen for investment because they are the best social and environmental performers in their respective industries.

"MISTRA has not chosen SRI instead of sustainability. MISTRA has chosen SRI as one tool to move in the right direction," said Ms. Thörnelöf.

Indeed, MISTRA is aiming to align its investments with its values, regardless of the semantics.

"MISTRA has a strong environmental profile and would look for screeners, funds, etc.... that are compatible with MISTRA's statutes and goals; if they are called SRI or sustainable funds will be a later question," said Ms. Thörnelöf.

MISTRA's implementation of screening criteria will likely fuse traditional SRI with sustainability.

"MISTRA is at the moment working on two tracks in parallel. One is the negative screening to remove 'bad guys'--those who are violating Swedish law or breaking conventions Sweden has signed," stated Ms. Thörnelöf. "The other track is positive best-in-class screening, where we at the moment do not exclude any sector besides tobacco."

MISTRA has yet to decide whether it will purchase SRI research and manage investments in-house, or simply buy into an existing fund. Whichever it chooses, MISTRA intends to serve as an example of an institutional investor that prioritizes financial return while promoting social and environmental progress.

"We believe that in the long run it will be profitable and a matter of survival for companies to take a large responsibility in environmental and social matters," concluded Ms. Thörnelöf.


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