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Responsible Investment

Most investment today is conducted by a relatively small number of institutional investors – pension funds and investment managers – who manage the pensions and saving funds of millions of ordinary people. The manner in which these institutional investors invest and discharge their responsibilities as the owners of companies is, therefore, of critical importance to society as a whole.

In recent years, some of the biggest institutional investors have actively encouraged companies to improve their management of social, ethical and environmental issues. A number have also sought to explicitly analyse companies' performance on these issues and to incorporate this analysis into investment decision-making. These activities have contributed to important changes: a number of companies have committed to stabilising or reducing greenhouse gas emissions from their activities and operations, labour conditions in many retail supply chains have improved significantly, and many companies have significantly improved their governance of corporate responsibility issues.

However, to date, there has been little systematic analysis of fundamental questions such as: Do responsible investment strategies systematically result in improvements in the social, ethical and environmental performance of companies? To what extent is it in investors' interest to encourage higher standards of corporate responsibility? Do responsible investment strategies enhance financial performance for investors?

In this ground-breaking collection, Rory Sullivan and Craig Mackenzie have brought together some of the leading practitioners and commentators in the field of responsible investment to explore these questions. The contributors to this book present their views on the practicalities of implementing responsible investment strategies, the outcomes that have been achieved, the practical issues and barriers faced in implementing such strategies, and the challenges to be faced if responsible investment is to become a mainstream investment approach. The results are both unique and surprising.

This book will be mandatory reading for all those involved in the field of social and environmentally responsible investment, corporate governance and corporate social responsibility whether they be academics, researchers or practitioners.

An impressive and wide-ranging list of contributing writers advance a balance between elucidating the strengths of socially responsible investing while also exposing its weaknesses ... On first glance, the most impressive aspect of Responsible Investment is its list of contributors ... [The] editors are to be applauded not only for corralling such a wide-ranging, intelligent, and experienced group of writers, but also for a more subtle aspect of this indispensable volume ... [they] frame the book with a set of questions, including whether SRI actually improves corporate governance, social, ethical, and environmental (GSEE) performance, and whether SRI enhances financial performance for investors. While the second question has received much attention, the first question, which really gets at the fundamental foundation of SRI, has slipped under the radar. Read the full review

Bill Baue, SocialFunds.com.

The leading SRI thinkers at Insight, Morley, Innovest, Goldman Sachs and many more have pooled their latest thinking in this important book. The editors have marshalled a range of perspectives on the "why" and "how" of investor responsibility. Each contributor gives a clear elucidation of their house style. Case studies show how they go about their job in practice. Each one illustrates the processes being used to analyse stockmarket implications of social issues. This is the most detailed resource yet available on how SRI funds work in practice.

Corporate Citizenship Briefing, January 2007

A "who's who" of leading UK SRI thinkers and practitioners, together with a savoury salting of other EU and US experts. Highly recommended.

John Elkington, Founder and Chief Entrepreneur, SustainAbility

Voting demographics, a growing crisis in public finances and the destruction of economic value through shareholder short-termism will drive forward responsible investment even if our personal and collective ethics fail to underpin a moral renaissance in investor behaviour. The question is when and how, not whether, and this book offers much-needed pathways that the investment community can choose to take, or else be overwhelmed by coming changes.

Simon Zadek, Former Chief Executive, AccountAbility

Companies are unlikely to thrive in the long term if they are in conflict with the society from which they derive their franchise. This book sheds useful light on the implications of this for investment.

Peter Montagnon, Director of Investment Affairs, ABI

This book provides valuable hard evidence of the practice of responsible investment. As the world moves towards a new model of caring capitalism there is the possibility of the next 'great transformation'. We need news from the front of the movement from corporate social responsibility to corporate citizenship and this book has an abundance of intelligent insights by reflective practitioners.

Malcolm McIntosh, General Editor, Journal of Corporate Citizenship, and Visiting Professor, Universities of Bath, Nottingham and Stellenbosch

Responsible investment has been defined too narrowly for too long. This book redefines responsible investment to reveal its relevance to all institutional investors, suggesting that many today may be engaged in irresponsible investment that neither serves society nor their fiduciary obligations.

Craig Smith, Senior Fellow in Marketing and Ethics, London Business School

Just what's needed: an introduction to the field; case studies that set out the state of the art; and a critical appraisal of the hype by some of socially responsible investment's foremost practitioners. Part manual, part call to arms and part thought-provoking reflection. An essential starting point for anyone who wants to shape the future of socially responsible investment or to understand its potential and limitations.

Halina Ward, International Institute for Environment and Development

Responsible investment is now not only an important issue for investors, but also for regulators, NGOs and listed companies. This book brings together leading thinkers from these fields and makes a valuable contribution to the development of the subject.

Mark Makepeace, Chief Executive, FTSE Group

This excellent book explains the increasingly important role played by institutional investors who demand financial returns that are sustainable over long-term horizons. A welcome addition to a field that is quickly entering the financial mainstream.

Matt Christensen, Executive Director, European Sustainable and Responsible Investment Forum (Eurosif)

Foreword
Stephen Timms MP, Minister for Pensions Reform, UK


Part I: Introduction and background

1. Introduction
Rory Sullivan and Craig Mackenzie, Insight Investment, UK

2. The scope for investor action on corporate social and environmental impacts
Craig Mackenzie, Insight Investment, UK

3. A historical perspective on the growth of socially responsible investment
Russell Sparkes, Chief Investment Officer, Central Finance Board of the Methodist Church, UK

Part II: Enhanced investment analysis and decision-making

4. Does a focus on social, ethical and environmental issues enhance investment performance?
Rory Sullivan, Craig Mackenzie and Steve Waygood, Insight Investment, UK

5. Integrated investment analysis: Investment implications of the REACH regulation
Steve Waygood, Insight Investment, UK, and Steffen Erler, Walter Wehrmeyer and Harish Jeswani, Centre for Environmental Strategy, University of Surrey, UK

6. Morley Fund Management’s approach to investment integration
Ronnie Lim, Morley Fund Management, UK

7. Integrating governance, social, ethical and environmental issues into the corporate bond investment process
Kerry ten Kate and Andy Evans, Insight Investment, UK

8. HIV/AIDS: Economic implications for the Southern African mining industry
Simon Toyne, Dresdner Kleinwort Wasserstein, UK

9. The Goldman Sachs Energy ESG Index: Integrating environmental, social and governance factors into energy industry analysis
Sarah Forrest, Anthony Ling and Jonathan Waghorn, Goldman Sachs, UK

10. Sustainable investment research: Innovest Strategic Value Advisors
Matthew Kiernan, Innovest, USA

11. SAM’s approach to measuring and valuing corporate sustainability performance
Gabriela Grab Hartmann and Thilo Goodall, SAM Sustainable Asset Management

12. Communicating risks to pension fund trustees: The UKSIF sector notes project
Meg Brown, UKSIF, UK

Part III: Shareholder activism

13. Shareholder activism on social, ethical and environmental issues: An introduction
Rory Sullivan and Craig Mackenzie, Insight Investment, UK

14. Universities Superannuation Scheme: Implementing responsible investment
Peter Casson, University of Southampton, UK, and David Russell, USS, UK

15. Henderson Global Investors: Engagement and activism
Rob Lake, Henderson Global Investors, UK

16. Insight’s approach to activism on corporate responsibility issues
Craig Mackenzie and Rory Sullivan, Insight Investment, UK

17. The role of activism in responsible investment: The FTSE4Good indices
Will Oulton, CRG Advisory Services, UK

18. Measuring the effectiveness of investor engagement: GSK and developing-country access to essential medicines
Steve Waygood, Insight Investment, UK

Part IV: Perspectives on responsible investment

19. The universal owner’s role in sustainable economic development
James P. Hawley and Andrew T. Williams, Saint Mary’s College of California, USA

20. Companies run in shareholders’ long-term interests also serve society’s long-term interests
Robert Monks, Lens Governance Advisors, USA, and Allen Sykes, UK

21. Why socially responsible investment requires more risk for companies rather than more engagement
Peter Frankental, Amnesty International UK

22. SRI analysts: is it time to bring them in from the cold?
Ralph Edmondson and Adrian Payne, British American Tobacco, UK

23. Exerting influence: engagement or best-in-class?
Andy Wales, Severn Trent plc, UK

24. Engaging with investors: from values to value
Chris Tuppen, BT, UK

25. Workers’ capital: promoting trade union concerns through investment
Tom Powdrill, Trades Union Congress, UK

26. Pharma Futures: investor analysis of the future of the pharmaceutical sector
Sophia Tickell, Pharma Futures, UK

27. Evaluation and research of SRI managers
Emma Whitaker, Mercer Investment Consulting, UK

28. Why should investors care about responsible investment?
Yusuf Samad, Hewitt Bacon & Woodrow, UK

29. A critical perspective on activism: Views from a pension fund professional
Raj Thamotheram, USS, UK

30. Shaping the market: investor engagement in public policy
Nick Robins, Henderson Global Investors, UK

31. Harnessing investors to support the implementation of health and safety public policy
Steve Waygood and Rory Sullivan, Insight Investment, UK, and Alan Morley, Health and Safety Executive, UK

Part V: Discussion and conclusions

32. The practice of responsible investment
Rory Sullivan and Craig Mackenzie, Insight Investment, UK

33. Looking forwards
Craig Mackenzie and Rory Sullivan, Insight Investment, UK

RORY SULLIVAN is a responsible investment expert and a Senior Research Fellow at the University of Leeds. CRAIG MACKENZIE is Head of Sustainability at Scottish Widows and a Senior Lecturer at the University of Edinburgh.

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