Welsh MPs lead a recent debate in parliament to raise
concerns about the impact of rural bank closures; HSBC had announced that three
banks in rural Wales would close in March. MP Chris Ruane said banks must “look
again at the balance between profit and social responsibility” (BBC News, 2012).
Socially responsible investment (SRI) is “an investment
project that integrates social, environmental and ethical considerations into
investment decision making” (Renneborg ,2008). It considers both the investor's financial
needs and an investment’s impact on society (USSIF, 2012).
The chairman of RBS, Sir Philip Hampton, has been in the
news on a regular basis this year. This is mainly because of the bad reaction
that occurred after he had offered Stephen Hester a very handsome bonus. Sir
Philip defended his decision; his reason for this was that RBS needed to be run
“by the best people” on “competitive” pay (BBC News, 2012).
I believe that this is one of the main problems with SRI.
The general public believe that companies do not do enough to support society.
The companies would argue that their main priorities are to maximise
shareholder wealth. Anything after this is usually just seen as a bonus. Some
companies would most likely label being socially responsible as very low on
their list of priorities. Is it right for companies to act and think in this
way?
Ethical investing originally related to religious aspects.
Different religions had different views on how money should be invested. These
views have changed over the years and people are now more open minded to how
money should and could be spent. This could be seen as a positive or negative
light. A positive aspect is that there are now more options to how money can be
spent and may well still be classed as an SRI. A negative may be that investments
can be based on profits only. Some companies may find it perfectly acceptable
to invest in cigarettes and alcohol as the return may be good. Some companies
would class this as ethically wrong. Banks are known to look out for number one
so as long as investments they made produced good returns then they would be
fine with this.
Rules of SRI imply nothing about the source of investment
fund. Not overly concerned about how people are getting their money. The question
should be asked to whether this should be as important as where that money will
be getting invested. Some may argue that bank charges may be too high and
therefore they should not be entitled to all of those earnings. If banks did
not charge the customer as much then they may not be able to offer the
attractive bonuses to managers and CEO’s.
There are three main categories that SRI can be split
between:
·
Responsible Investment· Socially Repsonsible Investment
· SustainableInvestment
(EUROSIF, 2012)
It may be important to some companies as to what category
an investment falls into. This may be the reason as to why the investment is
made or not.
EUROSIF define SRI as:
“A generic term
covering ethical investments, responsible investments, sustainable investments,
and any other investment process that combines investors’ financial objectives
with their concerns about environment, social and governance (ESG) issues”
This statement covers everything in terms of morals and
ethics. Maybe certain social aspects should be concentrated on ahead of very vague
issues. Certain aspects could maybe be agreed on as much more important than
others and they are what should be focussed on first and foremost.
Distinguishing what is important in society in relation to banks may have .
Philip, Hager and North Investment Management Ltd (2007)
suggested that “if SRI is found to produce lower investment returns than SRI
will never be more than a niche market”. This sentiment is something that banks
would most likely agree with. Banks are aware of this scenario and would argue
that if there is not a big benefit gained from an investment then why do it.
No matter how much SRI funds are tweaked they will never
beat traditional funds (Schroder, 2004). However, SRI mirrors main index returns and they do become more
comparable over time. The graph below supports this statement. If there is no
difference between the returns on the two funds over time then may people may
begin to choose SRI. To make benefits to society without losing funds can only
be a good thing.
(CBS News, 2012)
Providing a good services and products to society under
the best circumstances is what can make an average company become a
multinational company. It is important for banks to remember that without their
customers there would be no business. Just because rural areas do not suit
their profit margins does not mean that they should be ignored.
Sources used:
BBC News
CBS NewsEUROSIF
Philip, Hager and North Investment Management Ltd
Renneborg
Schroder
USSIF
It's not easy is it? Just what is SRI and in whose opinion? Responsible for who? And in which society? There are certainly lines to be drawn in terms of what's acceptable (or responsible) but what would you do, say with £500K to invest, would SRI aspects matter to you? What would be your priority?
ReplyDeleteNo, I agree that it is not easy to truly define an SRI as there will always be people that disagree with what is being suggested. I believe that the main problem is that people class ‘responsibility’ differently, depending on their background and circumstances. Factors such as religion can automatically decide what you would and certainly wouldn’t invest in.
ReplyDeleteMy beliefs may be very different to the next person. Lots of investments are acceptable and responsible in my eyes so £500k would only be a drop in the ocean in relation to what I would feel comfortable investing in! That is one of the main problems in itself. Many people may not have one priority that stands above any other as an investment; this can make it very difficult to have a clear vision. It also suggests why it is very easy for one person to suggest why one person’s priority should not be invested in as other people’s priorities may lie elsewhere.