Identifying the full range of issues that interest to SRI investors is an unenviable task – and not one that we attempt here. Instead we outline some basic principles that should guide companies on how to shape their message for this audience.
All SRI investors, in one form or another, are interested in how companies manage their social, environmental, economic and ethical impacts. While the categorisation can be disputed at length, the following rough guide should identify most issue areas.
Ethical issues
Although ‘ethical’ is a familiar tag to SRI investors, in practice, there are very few issues that arise from religious or moral considerations. (Particularly, if you consider tobacco and alcohol production as ‘social’ rather than ‘ethical’ issues). Indeed, it is only issues such as contraception, pork production, animal welfare/testing and lending at interest that can really be classified as ‘ethical’. Companies that are exposed to such issues should be clear and transparent about the nature of this exposure.
Social issues
Investors typically consider social issues in respect of stakeholder relationships. They will look for companies that are effectively managing their relationships with employees, local communities, suppliers, regulators, customers and civil society (media, NGOs etc.). They will ask themselves whether the relationship with each stakeholder is being managed for the long-term as well as for the short-term.
Environmental issues
Investors will look for companies to manage their resources efficiently and minimise the pollution and waste output that come from all stages of the value chain: supply chain, production processes, product in use and end-of-life disposal.
Economic issues
A company’s economic performance is often a critical component of its relationship with government and its political ‘licence to operate’ and SRI analysts are likely to be interested in companies’ contributions to national and local economies measured by issues such as employment, international competitiveness, taxation, impact on inflation etc.
Sector-specific issues
Outside of a few core measures of ethical probity and governance, companies will typically be measured on measures that are specific to their particular sector. Oil companies will be asked about tanker integrity while retailers will have to answer questions on trends in ethical consumerism.
Single issue interests
In addition to these structured interests, investors also have to respond to strong single-issue interests of their clients which range from involvement in conflict zones or the manufacture of landmines or cluster munitions; involvement with animal testing; exploitation of low-paid labour etc. While these issues all fit into the same broad SRI issue framework, their prominence at any particular time is likely to be due to wider public or political pressure on asset owners.
Management process
SRI investors usually have a strong interest in the ‘management process’ that companies use to handle sustainability issues and will look for companies that display...
- ...senior management commitment to...
- ...and a strategic vision of, sustainable development that...
- ...is integrated into business processes via functioning management systems...
- ...that can identify and manage environmental and social risks...
- ...and promote potential ‘sustainable opportunities’...
- ...in line with good financial disciplines...
- ...and that is reported transparently to investors
