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.
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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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