Ethical Performance
inside intelligence for responsible business


cleaning up corporate America finally pays a CSR dividend

February 2003

The decision of the Securities and Exchange Commission to require US mutual funds to disclose their proxy voting policies and voting records ends a long-standing anomaly. Previously there was no requirement for mutual funds even to keep records of their votes, let alone disclose them.

The SEC has now made it easier for individual investors to check up on what their fund managers are doing. Its modest proposal to increase transparency represents a significant extension of consumer power and may have far-reaching effects for corporate social responsibility. At a stroke, the SEC has given the 90 million Americans who put their money into mutual funds access to information about a key aspect of the social and environmental performance of their investment vehicles. Small wonder that the SRI mutual fund community in the US is jubilant.

One consequence should be to stimulate further shareholder activism on social and environmental issues. Shareholders are already more active in this area than ever before, with the number of resolutions on global labour standards alone doubling to 49 in the last three years, according to the Investor Responsibility Research Center. Support levels for such resolutions are also rising.

Of course, the SEC hasn’t wholly cured the problem of voter apathy. But unlike Europe, the US SRI market is defined much more by private investors than by sometimes sleepy institutions. SRI funds there can point to a number of corporate scalps they have recently won, among them Home Depot, which has stopped sourcing products made from old-growth wood and several companies which have produced environmental policies following resolutions submitted to that effect.

The Sarbanes-Oxley Act generally disappointed CSR and SRI practitioners because it did not address wider social and environmental issues in its corporate governance measures. But this initiative should bring real benefits – and at an average cost of $3000 a year per fund, on SEC estimates, it is also a regulation that represents good value for money.

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