- Socially Responsible Investment - Definition
- UK SRI market
- Size and growth of SRI market
- Importance for food companies
- Challenges

Socially Responsible Investment - Definition

• Socially responsible investment (SRI) - actively screen out screen out investment in armaments, tobacco and gambling for example
• Social Impact Investment (SII) - target investment in the building of schools and hospitals for example
• Social Enterprise Investment (SEI)  - organisations that pursue a combination of social and economic objectives

also collectively known as ethical investment, the strategy of focusing on the positive social and/or ecological impact of a company, in addition to its financial return.
 

UK SRI market

In the UK the main SRI market is represented by the FTSE4Good index. This index measures the performance of companies on globally recognised corporate responsibility standards which cover the following categories:

• Environment – working towards environmental sustainability
• Social and stakeholder – developing positive relationships with stakeholders
• Human rights – up-holding and supporting universal human rights
• Supply chain labour – ensuring good supply chain labour standards
• Countering bribery

FTSE4Good have a number of methods to monitor company performance on the above criteria including annual reports and web-sites and responses to written questionnaires.

There is also a growing awareness amongst investment managers of the demand for social responsibility in investments. This has seen many in the UK and overseas sign-up to the six principles of the UN ‘Principles for Responsible Investment.

A number of Asset Management companies in the UK have also made commitments to managing client funds according to responsible investment principles. Taking ‘Insight Investments’ as an example they have established an investor responsibility team and sought to influence the companies they invest in. In doing this they have become actively involved in debates around corporate governance, climate change, sustainable development and corporate responsibility. They have also targeted issues which have required food and grocery companies to respond positively, for example diet and health.
 

Size and growth of SRI market

The table below indicates the main areas for ethical finance and shows the relative importance of ethical investments compared to other forms of ethical finance.

Ethical Finance spend and growth in the UK, 2005-2006

Source: The Co-operative Bank

Up to the minute performance of ethical funds can be viewed at the FTSE4Good website.

Importance for food companies

A glance at the FTSE index will show a large number of major grocery retailers and food and drink manufacturers are listed companies. Put simply the value (market capitalisation) of these companies is dependent upon market confidence in their performance which, with the growth of the SRI market includes their performance on ethical and social issues, in addition to traditional financial returns. A number of food and grocery companies are in the FTSE4Good index and all listed companies in this sector take pride in maintaining and improving their performance in this market.

The active management of assets on an SRI basis by several major asset management companies continues to challenge food and grocery companies to improve their performance across a wide range of sustainability areas.
 

Challenges

Perhaps inevitably, the main challenge is to define what is and is not ethical. As this will change over time and differ across the globe so criteria to measure ethical performance will constantly evolve.

The rapid growth in this market could partly explain a broadening of the definition of ethical investment. With a small pool of companies to invest in fund managers have fewer options with which to capitalise on returns for investors so in some cases fund managers have changed their criteria of ethical in order to expand their options for investment.

The UN principles for sustainable investment seem at least to provide a common framework through which to define ethical investments, and various international conventions on human rights, labour standards, the environment, corruption and landmines also exist to help provide a framework.