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 8: Socially Responsible Investment and Global Banking

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 Banks financing project loans have been increasingly paying more attention to the environmental and social risks in the projects and the effects on socially responsible investments. Currently the largest social risks to banks are the consumers that have over-extended their mortgage debts, related to the subprime credit crunch crisis starting in 2007. Banks have created an excessive lending crisis, when consumers failed to maintain payments for mortgage and car debts, particularly in the US. The over-exposure of banks to this risk, especially those involved with subprime mortgage lending, has had a substantially adverse effect on their balance sheets. In terms of cross-border lending, global banks face challenges in lending to governments or state-owned companies. Although sovereign loans can be lucrative (often backed by valuable collaterals such as oil revenues), total bank loans can have enormous effects, potentially stabilizing or destabilizing a country. As a result, some global banks (for example, HSBC) have incorporated sustainability considerations into their operations by offering SRI funds with the intention of improving the welfare of the economy. These SRI vehicles invest in companies that attempt to mitigate social problems, such as by providing low-cost housing, developing educational products, or by including companies with best-practice policies against issues such as corruption and child labor. SRI is an attempt to improve social conditions, as well as the economy. Banks have an inherent interest in the sustainability of businesses for two reasons: (1) they expect a decent return on their investment and consider risks associated with ESG...

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