Before Christmas, the Financial Times reported on an announcement from Henderson Global that its socially responsible investment (SRI) team is likely to leave the company. It was the latest in a series of similar developments which had seen many others such as JP Morgan and UBS Securities making cuts to their social and environmental teams.
The most instinctive response is to view this news as a sign of an industry losing faith with socially responsible investing. However, I’d suggest there are several other ways to look at it.
One alternative would be that, such is the mainstreaming of the SRI sector, it is not, as some predicted, becoming an asset class in itself. Rather, we are seeing principals of SRI increasingly being adopted across the board. Recent research from Ecclesiastical Investment Management (also reported in FT) suggests the majority of investors would consider SRI if their financial advisor discussed it with them. The figures suggest interest in these products and ethical issues continues to grow hinting at the emergence of what I’ve previously referred to as 3D investing. In this environment investment decisions will be made, not just on risk versus reward, but also on a third pillar – social impact. If this is the case and social concerns are playing a larger part in mainstream investment then I’d argue this is something we should welcome.
However, one might also suggest it says a great deal about how some SRI fund managers have been screening potential investments. On closer inspection, the portfolios of many differ little from what we might see in conventional funds. It is an issue which Barchester Green has been highlighting for some time now with its Heroes and Villains of ethical investment report. In its latest, released late last year, it drew attention to the presence of companies such as BP, Rio Tinto and Glaxo in a number of ‘ethical’ labelled funds. I am certain the managers of these funds might have arguments for their presence, but it hardly seems much effort has gone into the screening process.
Seen in this light, Henderson may have taken the decision that it is not necessary to have separate teams for SRI and conventional investments. This is not to criticise the performance of the team at Henderson – indeed they have been one of the best of the sector as you can see by their presence on Barchester’s ‘heroes’ list, and we have found them to be one of the best, in our own interactions with them.
However, it does serve as a warning to SRI teams elsewhere. The onus is being placed very firmly on them to prove their value-added; and this is not just about financial performance but the uniqueness of their social impact generated. Just as the best fund managers in the mainstream world are those who do things a little differently, so should SRI teams, going the extra mile in ensuring their choices satisfy the mix of risk, return and social impact required in the world of 3D investing.
First Published in Third Sector in January 2012.