SRI investors need to assess companies and not countriesApril 2002
The powerful Californian state pension fund, Calpers, has done socially responsible investment no favours with its decision to begin selling the equities it holds in some south-east Asian countries on largely ethical grounds.
There are two main reasons why investors adopt SRI policies. The first is to identify social and environmental risks companies may face, and to encourage them to manage those risks effectively. Calpers will no longer do that in the countries concerned because it is selling up. The second is to ensure that investor principle is reflected in investment practice. On that count too Calpers fails because many of the US and European companies in which it invests have a significant manufacturing presence in the countries concerned.
Calpers may have raised the profile of SRI by excluding entire countries, but it is giving companies there with good environmental and human rights records absolutely no incentive to continue their policies. As a result its decision may well lead to weaker environmental and social performance from the companies – not the intended result.
The choice of countries has also raised eyebrows among SRI investors. No doubt the methodology is internally consistent, but if Indonesia is off limits to Calpers then why isn’t, say, Turkey? Companies in both countries face an equal number of human rights challenges, according to the risk maps published last month by the International Business Leaders Forum. This shows that assessing countries is even more problematic than assessing companies.
Finally, the timing of the announcement in the midst of the Enron scandal suggests the pot is calling the kettle black. Why, managers in Asia might ask, are we the targets of a blanket ban when there are such glaring cases of poor corporate governance in the US? If Calpers wants to advance CSR, and along the way improve the lives of people living in south-east Asia, it should reverse its decision and invest in companies there which have good environmental and social records, engaging with them to raise standards – just as it does in the US.
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