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Financial Planning > Charitable Giving > SRI Impact Investing

Further Momentum

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If your clients haven’t already asked about socially responsible investing (SRI), they probably will in the near future. SRI has established itself firmly as a mainstream movement, and investor money continues to pour into investments with this theme. Consider these findings from the “2007 Report on Socially Responsible Investing Trends in the United States” issued by Social Investment Forum, or SIF, an association of 500 professional investors and institutions dedicated to socially and environmentally friendly investing:o 11 percent of assets under management in the U.S. – nearly one out of every nine dollars – are now involved in SRI, ando SRI assets rose more than 324 percent from $639 billion in 1995 to $2.71 trillion in 2007.

Investment ApproachesThe usual portfolio construction process considers a range of assets classes to achieve the desired risk/return profile. You won’t find an SRI box if you look at a grid of investment style boxes, but that doesn’t mean you should change your process, says Cheryl Smith, CFA, who chairs the Washington, D.C.-based SIF and is an executive vice president and portfolio manager with Trillium Asset Management Group in Boston. “You can think of SRI as an overlay,” she says. “There are large caps, small caps, growth, value, international and domestic companies that would be considered to fall within a SRI portfolio. We’re not talking about an additional style box that is out to the side of the traditional grid style boxes — it’s quite possible to integrate SRI into every component of the style box.” As Smith note, investors aren’t limited to domestic companies.

The Bank of New York Mellon works with over 170 international client-companies that have been recognized in one or more of the SRI/sustainability indexes. “All these firms have depository receipt programs, so investors in North America can buy U.S.-denominated securities of these international companies,” says Guy Gresham, an assistant vice president for the Bank of New York Mellon.

Investor goals determine the allocation and product selection processes for each portfolio. However, financial advisors can identify prospective SRI-investments from a wide spectrum of industries and countries of origin.

High Tech, High ConcernEnterprise-software developer SAP AG has been actively engaged in socially conscious issues for years. The company was a signatory to the United Nations Global Compact at its inception in 2000 and works actively to promote the compact’s 10 principles. In 2006, the company created a new business unit to empower customers with end-to-end solutions for governance, risk-management and compliance. Applications such as SAP’s global trade services help companies across diverse industries manage international trade compliance challenges. Additionally, the company provides solutions for unique industry demands, including emissions standards in the chemical and utility sectors, Food & Drug Administration requirements for pharmaceutical companies and Basel II regulations for the banking sector.

According to Friederike Edelmann, director of investor relations for SAP, the company’s public stakeholders are very interested in what SAP products and innovation can do to support society’s response to the challenges of climate change. “This led to the development of a portfolio of innovative enterprise management, supply chain and compliance solutions that are helping companies optimize their global operations and reduce their carbon footprint,” she says.

As a software company, SAP has a relatively low impact on the environment; nonetheless, the firm has a strong international commitment to reduce its impact in the areas of waste, water, energy and emissions. In 2007, SAP joined the Combat Climate Change (3C) initiative and signed the U.N. Global Compact Statement “Caring for Climate.”

The FTSE4Good and the DJ Sustainability Indexes have recognized SAP’s initiatives. The company is also one of the Global 100 “most sustainable” companies and one of only 50 companies included in Oekom Research’s Global Challenges Index because of its strong commitment to fighting global corruption.

Driving ForwardVolvo Group adopted its Code of Conduct in 2003 and continually strives to conduct business responsibly, according to John Hartwell, vice president of investor relations. A special group council coordinates the sustainability efforts for each of Volvo Group’s corporate values. The members of the council are in charge of various projects for each business area and business unit, and the group applies environmental-management systems in accordance with ISO (International Organization for Standardization) 14001, the international specification of an environmental-management system that includes requirements for establishing an environmental policy.

Volvo views sustainable development, both in environmental and social terms, as a vital condition to long-term profitability and increased customer and shareholder value, says Hartwell: “All business units have action plans in place for improvement. And work and social issues are an integrated part of the supplier evaluations since 2006.”

In September 2007, Volvo introduced the world’s first carbon-dioxide-neutral vehicle plant in Ghent, Belgium, where investments in wind power and biofuel generate electricity and heat that do not contribute carbon dioxide to the atmosphere. In March 2008, Volvo Group presented seven alternative fuel trucks plus one hybrid truck running on different fuels ranging from biogas to DME (dimethyl ether) at the Washington International Renewable Energy Conference in Washington, D.C. “If the Volvo Group succeeds in reducing environmental impact, it strengthens its own and its customers’ competitiveness while promoting a desirable social goal,” notes Hartwell.

“AXA’s approach to sustainable development is consistent with our responsible corporate culture,” says Catherine Boiteux-Pelletier, AXA Group’s head of sustainable development. “Accordingly, we have made commitments to our key stakeholders. They are set forth in the institutional pillar of our sustainable development strategy and concern human resources and human rights, clients, shareholders, the community and philanthropy, the environment and suppliers.

“Managing client risk and our commitments to them over the long term lie at the heart of our business,” explains Boiteux-Pelletier. “The business pillar of our sustainable development strategy seeks to integrate the major social, environmental and governance challenges into our vision of financial protection. To this end, we are developing: risk prevention in property-casualty insurance, raising awareness of the challenges of financing retirements in life insurance and savings, and responsible investment in asset management, through the integration of sustainable development criteria.”


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