Socially responsible investment: beyond altruism

A new concept within the financial sector

A new concept within the financial sector

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Corporate Social Responsibility is a concept that – be it well or poorly understood – is widely known about in society due to the widespread coverage that large companies give to it. This effort to communicate is perhaps the main reason the concept is poorly understood: their activities are seen as just another public relations exercise by a big company. It is perceived as an attempt to gain a “respectable” reputation in society, something their critics label as  “greenwashing”.

However, Socially Responsible Investing (SRI) is less well known and, for the majority of people, it is certainly more difficult to accept/understand its significance. The world of finance is perceived as a purely quantitative environment, in terms of profits, impervious to the problems of society and only interested in return on investment. With this perception, it would appear very difficult for a “Socially Responsible” investment to be considered a reliable term or seen as a viable investment tool. Nevertheless, SRI is considered as a donation, which for some people means it loses all its value – they see it as being on the same level as an altruistic donation – while others view it as a loss of earnings in that it accrues less profit than it would have obtained without the “social responsibility” element.

In the financial media, however, it seems that this is not the case. If we use the search engine of the Financial Times – the financial world’s preeminent publication – to look for news included in the section: “Ethical and Responsible Investment”, we see that over a month and a half – from 1 October 2017 up until today (16 November 2017) – there are 21 articles on the subject. In the “Social investment” section over the same dates the figure is 6 articles, and in the “Climate change” section there are 24 articles over this period.

The conclusion we can draw from this information is that at least the financial world is showing interest in the subject and that it is being developed in a range of different ways.

What are the reasons behind the financial world’s interest in SRI?

The ones that appear to be showing a growing interest  in the subject of SRI are institutional investors, who basically have to take a long-term view and they are noting a growing demand from their stakeholders for transparency regarding the criteria used for investing. An additional factor is the activism being displayed by some groups and institutions in Shareholders’ General Meetings which, in addition to tabling questions for the company’s  president in the “question and answer” session, are demanding that the Board’s agenda includes discussion of the company’s approach to ESG matters (environmental, human rights and good governance, especially in respect of remuneration for top executives). Votes on these topics rarely win a majority, but they send a powerful message to the Boards of Directors and company leaders they are up against. This message is reinforced by the influence in this same respect of “proxy advisors”, who advise institutional investors on which way to vote and who increasingly consider it “reasonable” to be aligned with these concerns in relation to the matters proposed at Shareholders’ Meetings by the Board.

In short, it seems that this trend towards greater transparency and responsibility on matters that are not exclusively financial is gaining ground in the world of capital, and curiously more rapidly than amongst the general public, who see finance as solely concerned with the economic profitability of the company. This process is amplified by the regulations on non-financial information being imposed by regulators within the European Union.

About the author:

Joaquín Garralda is a professor at IE University, a specialist in strategy and focused on the area of Corporate Social Responsibility. He is a speaker at several conferences and programs, and also acts as a driving force for CSR from various platforms. Chairman of Spainsif and Chairman of the Ethics Committee of the MicroBank Ethic Fund (Grupo Caixabank). He is a regular contributor to the leading economic information media in Spain and Latin America.