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winning entries generate innovative approaches to SRI

December 2003

A competition established to stimulate new thinking on how to encourage institutional investors to take a long-term view of investment has sparked a host of innovative SRI ideas.

The competition, organized by the Universities Superannuation Scheme (USS), attracted 88 entries from around the world and was won by Henderson Global Investors, which says it will now try to persuade clients to apply some of the investment approaches it has proposed.

Entrants had to respond to a notional mandate to manage €30 billion ($36bn, £21bn) for a consortium of pension plans from different countries ‘in a long-term and responsible manner’ over 20 years. Among ideas Henderson put forward were:

no performance fee earned during the first five years to reflect the long-term nature of the investment. In return the fund managers would expect to have the contract for a minimum term of ten years ‘to give us every chance to earn the performance fees’.
‘public commendation’ of companies with high responsibility standards. This group of companies would form the core of the portfolio, which would be based on an index that rewards responsible companies by overweighting them to create a ‘direct link between a company’s corporate responsibility and the scale of ... investment in it’.
property investments comprising 20 per cent of the portfolio would take account of social and environmental issues such as cleaning contaminated sites and ensuring a mix of tenants.
engagement with companies whose bonds are held. Although bondholders do not have the formal legal rights of ownership enjoyed by shareholders, ‘dialogue may still be effective’, according to Henderson, particularly where the fund also holds shares of the company.

Among the five winning entries from non-corporates, Peter Webster, executive director of the Ethical Investment Research Service, proposed dividing the pot among fund managers around the world. The managers would work together when engaging with companies and earn fees based in part on their success in bringing measurable improvements in the firms’ ethical performance.




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