Socially Responsible Investment in a Global Environment

Socially Responsible Investment in a Global Environment

Hung-Gay Fung, Sheryl A. Law and Jot Lau

Socially responsible investment (SRI) is becoming increasingly popular and can be potentially rewarding to all parties concerned. This book discusses the opportunities, challenges, and practices of SRI in a global financial environment in a consistent and integrated framework of risk management. It also covers a wide variety of environmental, social, and corporate governance (ESG) issues related to various participants, such as values-based retail, institutional investors, corporations, banks, supranational agencies, and non-governmental organizations.

Chapter 7: Practice of SRI by Institutional Investors, Non-Governmental Organizations, and Supranational Agencies

Hung-Gay Fung, Sheryl A. Law and Jot Lau

Subjects: business and management, corporate governance, corporate social responsibility, economics and finance, corporate governance, financial economics and regulation, law - academic, corporate law and governance, international investment law


INTRODUCTION Institutional investors, NGOs, and supranational agencies have been instrumental to the development and promotion of the best practices of SRI. Many of them help corporations comply with CSR objectives and SRI principles in a sustainable way, such that investors may enjoy competitive financial returns in the long run. Institutional investors include many types of organizations that invest for their own account or on behalf of clients and beneficiaries. Institutional investors who invest for their own accounts have slightly different concerns and attitudes towards SRI to individual investors (discussed in previous chapters). Institutional investors, like individual investors, seek competitive investment returns, often with relatively limited interest in sacrificing financial returns for superfluous social benefits. They are motivated more by the financial needs to meet institutional goals (for example, an education endowment to fund operations of an academic institution). Similarly, institutional investors acting as fiduciaries (investing on behalf of others), are required to act in the best interest of their beneficiaries. Determining whether the fiduciary is acting in the best interest of the beneficiaries depends on the purposes and goals of the investment and the legal framework in which the institutional fund operates (see UNEP FI AMWG 2005). Fiduciaries may be subject to legal requirements for seeking competitive returns, as is the case with many US private pension plans governed by the Employee Retirement and Income Security Act (ERISA). Thus, SRI practices by fiduciaries and institutional investors receive a great deal of attention from clients, beneficiaries, regulators, other investors and market...

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