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.
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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 SocialFunds.com 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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