GLOBAL - Socially responsible (SRI) or sustainable investing is proving robust despite current market conditions if figures from the US are anything to go by.
Research shows that the US market for SRI now stands at US$1.9trn compared to US$1.4trn in September 2001.
According to Cerulli Associates, several factors underscore the strength of the SRI market, including:
-Social investors tend react stoically to adverse market conditions by staying with funds in greater percentages than conventional investors;
- SRI also presents an opportunity to win over first time investors, especially in Europe as pension reform takes off.
- the SRI market segment is underpinned by legislative initiatives. In the US, the Securities and Exchange Commission has proposed that all US mutual funds be required to vote their proxies on the basis of publicly available guidelines and make their votes available to shareholders. This may result in an increased responsiveness of management to shareholder concerns, said Cerulli.
- the ‘European Multi-Stakeholder Forum on Corporate Social Responsibility (CSR)’, set up earlier this year, is devising a guide of their SRI policy on disclosure by pension and retail funds by mid-2004. Disclosure regulations in the UK, particularly in respect of pension funds, have already spawned imitations in other, mainly European, countries.
Cerulli analysts also see SRI and CSR converging.
“Investors want company boards screened for responsible governance practices, such as the independence and diversity of the audit committee,” said the report.
Corporate accounting scandals, such as Enron and WorldCom, compounded with the down draft in equity markets, have also chilled investors.
“Given the depth of distrust, fundamental corporate and financial market reforms - many corresponding to issues and recommendations that the SRI community has been making for years - will be required to restore trust.”
A number of pension schemes have been prompted to lock in gains with a move into bonds after the estimated deficit across FTSE 100 DB pension schemes improved by £36bn, over the 12 months ending 30 June last year, JLT Employment Benefits found.
HM Treasury has agreed in principle to give NEST a £329m contingent liability guarantee in the event of the master trust's wind up or closure.
AMP Capital has set up a dedicated team to help institutional investors, including pension funds, invest in infrastructure through direct equity allocations.