Labour Issues in the Investment Strategy of Socially Responsible
Investment (SRI)
David St. Maur SheilDirector, ASrIA
CSR for SustainabilityTaipei, December 2004
Introducing ASrIA
Not-for-profit membership association1
100+ members in first year – global
and local
Research – issues and opportunities
Awareness raising –website, media
Conferences, workshops, seminars
1 Sister organisation to UKSIF and US SIF
ASrIA PUBLICATIONS
• Raising the Labour Question: Contrasting business, investor, regulatory and activist perspective
• A pragmatic and comprehensive overview of the issues and complexities involved in assessing labour standards when making investments in China
What is SRIInvestor response to sustainable development
Investment that balances financial, social and environmental criteria
Enabling investors to invest in line with their values
Investment that takes a long-term perspective
A risk management tool
A framework and methodology
SRI IS A MAJOR INVESTMENT SECTOR
"One out of every eight dollars under professional management in the United
States today is part of a socially responsible portfolio.”
US SIF Trends Report 1999
Common SRI Criteria
Energy
Water Use
Air Pollution
Wastes & Toxics
Transport
ISO 14000
Resource Productivity
Biodiversity
Product Impact
EnvironmentProfit Sharing
Welfare at Work
Equal Opportunities
Civil/Employee Actions
Community & Public Policy
Supply Chain
Public Disclosure
SocialMilitary
Gambling
Pornography
Alcohol
Tobacco
Repressive Regimes
Genetic Engineering
Nuclear
Animal Testing
Ethical
• Founding Member of ASrIA
• Calvert has been in the mutual fund business for 25 years and manages approximately US$ 9.7 billion in assets in 28 screened and non-screened portfolios for over 330,000 shareholders.
Investment Methodology• a successful investment is one that not
only earns competitive returns but also helps to build a sustainable future and enhance quality of life.
• Calvert's social research analysts help identify companies with strong management and solid long-term prospects. The analysts' chief criteria are how these companies treat the environment, their employees, their communities and the safety of their products. If a company fails to meet any of Calvert's basic social criteria, it is ineligible for investment. If a company satisfies the Fund's criteria but demonstrates room for improvement, we may invest in it and raise our concerns in a dialogue with company management.
Calvert Corp Website:http://www.calvert.com/sri.html
Social Investment Criteria
• Companies eligible for Calvert portfolios provide safe and healthy work environments and promote the healthy development of all employees.
• We do not invest in companies that show a pattern of violating: fair labor practices; occupational safety and health regulations; and equal opportunity standards concerning pay, promotion and tenure with regard to religion, gender, age, sexual orientation, HIV/AIDS status, physical and mental ability, color, ethnicity, or national origin.We also reject companies that are the subject of serious labor-related actions by federal, state, and local regulatory agencies.
• We favor companies that:
• Actively hire and promote minorities and women. • Compensate their workers fairly. • Strive to achieve and maintain good labor-management
relations. • Provide programs and benefits that support workers and
their families. • Provide a safe and healthy workplace. Calvert Corp Website:
http://www.calvert.com/sri.html
SCMP
SCMP
ELMS INDUSTRIAL, SINGAPOREA material management company specializing in the treatment,
processing and recycling of electronic scrap, ranging from components to used IC trays.
When you work with Elms, you know you are making a choice to play a part in supporting a greener environment. This means conserving energy, efficient allocation of resources, reducing pollution, reducing waste, safeguarding individuals, communities, societies and the earth.
Can you guess where?
Here’s a Chinese electroplating facility
How is SRI practiced?
• Screening
• Voting and Advocacy
• Engagement
• Conditions on Loans
• Community Investment
Who Practices SRI?• Individual investors (Green funds, SRI funds)
• Church, Charitable and Caring Groups (Ethical funds)
• Pension Funds
• Insurance Companies
• Private Equity Investors
• Banks, Development Banks, and Multilateral Lending Organisations
• Micro-finance and Community Investment Agencies
Examples of Asian SRI Fund Investors
• Many first time investors
• High proportion of women
Nikko Eco-Fund Unifem-UOB Fund
• 75% first time investors
• 75% women• 75% blue collar
workers – i.e. not high income bracket
Investors’ Interests – Japan, UK, USA
Comparison of Individual Investors' Interests -Ministry of the Environment Survey 2003
0 10 20 30 40 50 60 70 80
Others
Prevention of child labour
Contribution to community
Equal opportunity
Stability of employment
Occupational health and safety
Labour/management relations
Prevention of corruption
Environmental issues
Consumer health and safety
Japan USA UK
Survey of Financial Professionals Interest in SRI – Taiwan
Among the following examples of social and environmental policy in companies, which are the ones that you will consider when selecting investments?
25.4
84.9
60.5
44.9
38.9
33.0
30.3
0 10 20 30 40 50 60 70 80 90 100
%
Respect for human rights
Good corporate governance
Environmental policy
Quality of consumer relations
Employee relations
Work conditions and atmosphere
Training policy
Examples
Socially Responsible Investing in Taiwan: A Summary ReportShih-Mo Lin, Xiu-Juan Li, and Jing-Shi Lin
Global Growth in SRI Funds
$0
$500
$1,000
$1,500
$2,000
$2,500
1995 1997 1999 2001
U.S.
US$ BN
192 Funds
67 Funds
$0$1,000
$2,000
$3,000
$4,000
$5,000$6,000
1995 1997 1999 2001
U.K.
US$ MM
Source: UBS Warburg - 1999 US Trends Report, USSIF, EIRIS1 U.K. Retail volume only. Does not include institutional, predicted to be approx. GBP120 billion end 2001
U.S.
U.K.1 49% CAGR
22% CAGR
Global Growth of SRI
• Europe : core SRI 34 billion Euros (USD 42 billion)• Wide view of SRI – (practice some screening and engagement) • 334 billion Euros (USD414 billion)
• Australia: 74 funds, and some USD 8.0 billion Sept 2002• SRI funds registered over 700% growth since 1996
• Japan: 11 SRI fund• 1st Nikko eco-fund – attracted USD1 billion in first six months,• mostly first time investors, and women
• Asia, ex Japan/Australia, 18 other SRI funds registered in:• Hong Kong, Taiwan, Singapore, Korea, Malaysia and India
SRI Fund Providers in Asia Today
Korea• Samsung Group
Malaysia• Maybank Mgt Bhd.• 34 Islamic Funds
Indonesia• Several Islamic Funds
Singapore• AMP Hendersons• Morley FM• UOB Asset Mgt• 2 Islamic Fund Providers
Taiwan• UBS Global Asset Mgt.
India• JM Heritage Fund • Inheritance India
Australia 74 funds, incl.• AMP Group• ANA Friendly Society• Australian Ethical• BNP Paribas• Challenger Group• Equity Trustees• Glebe • Hunter Hall• ING Funds • IOOF• Warrakiri Asset Mgmt• Westpac Investment Mgmt
Japan 11 funds incl.• Asahi Life Asset Mgmt• Daiwa Asset Mgmt• Mitsui Marine Asset Mgmt• Nikko Asset Mgmt• UBS Global Asset Mgmt• UFJ Partners Asset Mgmt• Yasuda Asset MgmtHong Kong• Kingsway Fund Mgt.• Henderson Global Inv.• Friends Provident• ABN Amro• ING Invest. Mgt.• UBS Global Asset Mgt.• Pioneer Investments
Domini 400 Social Index – S&P 500Comparative Performance Since Inception in May 1990 to June 2003
5 Years: July 1998 to July 2003
•DJSI World – USD Performance and Risk (I)December 1993 - June 2003, USD, Price Index
80
130
180
230
280
330
12/93 6/94 12/94 6/95 12/95 6/96 12/96 6/97 12/97 6/98 12/98 6/99 12/99 6/00 12/00 6/01 12/01 6/02 12/02 6/03
DJSI World (in USD) DJGI World (in USD)
• DJSI World / DJGI World:• Correlation: 0.9644 Tracking Error: 4.37%• DJSI Volatility: 16.33% DJGI Volatility: 15.10%
67%40%
http://www.sustainability-index.com/
ABN AMRO Bank, N.V.Banco BradescoBanco ItaúBanco Itaú BBABank of AmericaBarclays plcBBVACalyonCIBCCitigroup Inc.Credit Suisse GroupDexia GroupDresdner BankEKFHSBC GroupHVB GroupING GroupKBCMCCMizuho Corporate BankRabobank GroupRoyal Bank of CanadaStandard Chartered BankThe Royal Bank of ScotlandUnibancoWestLB AGWestpac Banking Corporation
• 27 financial institutions from 14 countries have adopted the Equator Principles. These financial institutions operate in over 100 countries. As a result, the Equator Principles have become the project finance industry standard for addressing environmental and social issues in project financing globally.
• the banks which are using the Equator Principles arranged $55.1 billion of project loans in 2003, representing 75% of $73.5 billion project loan market volume in 2003.
http://www.equator-principles.com
ABN AMRO Bank, N.V.Banco BradescoBanco ItaúBanco Itaú BBABank of AmericaBarclays plcBBVACalyonCIBCCitigroup Inc.Credit Suisse GroupDexia GroupDresdner BankEKFHSBC GroupHVB GroupING GroupKBCMCCMizuho Corporate BankRabobank GroupRoyal Bank of CanadaStandard Chartered BankThe Royal Bank of ScotlandUnibancoWestLB AGWestpac Banking Corporation
LOAN CRITERIA• The Equator Principles apply to projects which cost
$50 million or more. projects costing less than $50 million represent only 3% of the market.
• financial institutions will not provide loans to customers which are unable to or do not follow the financial institutions' environmental policies.
• financial institutions will require their customers to demonstrate in their environmental and social reviews, and in their environmental and social management plans, the extent to which they have met the applicable sector-specific guidelines
• If those plans are not followed, and if deficiencies are not corrected, financial institutions will have the ability to declare the project loan in default.
http://www.equator-principles.com
IFC Environment and Social Development Guidelines
"When we first obtained financing from IFC, the environmental standards seemed like an obstacle, but we realize now that they have helped us build a strong business," notes Rafael Wong, Executive Vice President of Favorita, an Ecuadorian banana grower that became the first firm to receive the Rainforest Alliance’s certification for management of environmental and social concerns in 2000.
"And in five years from now, there will be no access to international markets for companies that do not show this respect for the environment. It is becoming fundamental to international trade."
•http://ifcln1.ifc.org/ifcext/enviro.nsf/e11ffa331b366c54ca2569210006982f/ab563c471974212685256d800068a8fb?OpenDocument
Impactt and HKPC Overtime ProjectA clear inverse correlation between worker efficiency and
overtime hoursFindings:
• If wages reduced workers leave the factory
• Factories use negative management techniques to increase productivity and control workers- fines,late payment of wages etc.
• Efficiency levels in factories studied low
• A clear inverse correlation between efficiency and overtime hours
Recommendations:
• Improve worker and management communications
• Ensure workers get paid benefits from increased productivity
• Provide package of benefits/incentives to skilled workers
• Commitment of factory managers, and purchaser/agent decisive
http://www.impacttlimited.com/site/casestudy_item.asp?CS_ID=9
CSR – MANAGING RISK• Positive Investment of Time and Money
• Increase Competitiveness and Attract and
Retain Clients and Investors
• Reduce Risk of Fines
• Reduce Risk of Negative Publicity
• Reduce Risk to Brand Name and share
value
Market catalysts for SRI in Asia
• Scandals and demographics• SRI attracts quality customers
– Long-term investors not day traders– Regular earners– Tertiary education
• Maturing markets everywhere thrive on – Better disclosure– Consistent oversight – More informed choices
• Global capital and customers
Labour Issues in the Investment Strategy of Socially Responsible
Investment (SRI)
David St. Maur SheilDirector, ASrIA
CSR for SustainabilityTaipei, December 2004