Business for Social Responsibility (BSR), which has been providing socially responsible business solutions to 250 of the world’s leading corporations since 1992, recently published an insightful report, “Environmental, Social, and Governance: Moving to Mainstream Investing?” The report is unique, as it is largely based on the views of more mainstream financial institutions rather than the usual SRI suspects. Wells Fargo, Goldman Sachs, and Standard & Poor’s joined Al Gore’s firm, Generation Investment Management, two academic scholars, and two SRI researchers to create the report, designed to help mainstream financial advisors to incorporate environmental, social, and governance (ESG) factors into their analyses.
The report notes that “Although many studies show a positive association between investors’ use of ESG criteria and enhanced financial performance, the data is still inconclusive, and mainstream investors remain skeptical.” It identifies key barriers to the more widespread use of ESG criteria by companies and investors and suggests possible solutions for breaking down the barriers.
The first barrier to wider integration of ESG factors is inherent in the recent emergence of ESG considerations: the lack of information on the long-term effects of ESG on the financial returns of companies. One start in this direction is Goldman-Sachs’ “GS Sustain Focus List,” which evaluates how well companies integrate ESG criteria into their businesses; tellingly, the companies that meet their criteria have outperformed the world stock index MSCI by 25 percent since August 2005.
This article first appeared in the Fall 2007 issue of the Natural Investing newsletter
This year is a watershed for Natural Investment Services. In addition to our ownership change, we are celebrating the 15th anniversary of the NIS Social RatingSM (The Heart Rating) that Jack Brill developed in 1992 while writing Investing from the Heart. The nation’s only social rating system of SRI mutual funds, it is based on the breadth and depth of social responsibility criteria applied by each fund. The presentation of the Rating, from one heart to five hearts , is similar to the star-rating used by Morningstar®, and investors can use this symbol to distinguish funds that address social, environmental, and governance issues comprehensively from those which address only a few items.
