Responsible Investment Forum with Steve Schueth

Responsible Investment Forum with Steve Schueth

Socially responsible investment strategies serve as the foundation for the United Nations' new Principles for Responsible Investment. The U.N.'s voluntary guidelines provide a framework for the systematic integration of environmental, social, and governance (ESG) issues into investment decision-making. I share Secretary-General Kofi Annan's hope that the Principles will "contribute to a more stable and inclusive global economy." Fortunately, most of the investment management and mutual fund companies who serve socially conscious investors have been operating in a manner consistent with the U.N. Principles for years -- it's what differentiates us in the marketplace. So this no experiment -- we've been proving the wisdom of a more holistic approach to investing for a long time.


U.N. Launches Principles for Responsible Investment

"With only rare exceptions, the financial community has not sufficiently recognized or rewarded corporate efforts to respond to environmental, labor or human rights challenges, even though such factors can be directly material to corporate performance," U.N. Secretary-General Kofi Annan said when he announced the United Nations Principles for Responsible Investment.

The heads of leading institutions from 16 countries, representing more than $4 trillion in assets owned, have signed the Principles.

The Principles recognize that environmental, social, and governance (ESG) issues can affect business profits and portfolio performance. Six overarching principles, underpinned by 35 possible actions, guide institutional investors and asset managers in practicing responsible investment. The Principles are designed to encourage the integration of ESG issues into investment analysis, stimulate active ownership and proxy voting, and improve ESG disclosure by companies.

The Principles were developed during a nearly year-long process convened by the U.N. Secretary-General and coordinated by the U.N. Environment Program Finance Initiative (UNEP FI) and the U.N. Global Compact.

"These Principles grew out of the understanding that while finance fuels the global economy, investment decision-making does not sufficiently reflect environmental, social, and corporate governance considerations or, put another way, the tenets of sustainable development," the Secretary-General said.

He added: "Developed by leading institutional investors, the Principles provide a framework for achieving better long-term investment returns and more sustainable markets. I invite institutional investors and their financial partners everywhere to adopt these Principles."

Signatories fall into three categories: asset owners, investment managers, and professional service partners. Asset owners include some of the largest state pension funds in the U.S. such as the California Public Employees Retirement System (CalPERS), the New York State and Local Retirement Systems, and the Connecticut Retirement Plans and Trust Funds. Signatories also include SRI mutual fund companies Calvert and Domini Social Investments, as well as independent investment advisor, First Affirmative Financial Network.

"We are proud to endorse the Principles, which recognize that social and environmental issues can be material to the financial outlook of a company and therefore to the value of our shares in that company," said Denise Nappier, treasurer of the State of Connecticut. "Markets tend to focus too heavily on short-term results at the expense of long-term and non-traditional financial fitness factors that could affect a company's bottom line. For many institutional investors it is the long-term that matters and in this context environmental, social and governance issues take on new meaning."

Signatories are specifically required to apply the Principles across the entire organization, preventing organizations from claiming signatory status based on limited SRI fund offerings or isolated ESG practices. The Principles promote shareowner engagement and active voting, while discouraging exclusionary screening based on ESG considerations.

"Through their focus on engagement, not divestment, the Principles represent a major milestone in our efforts to root global business in universal values to achieve a more sustainable global economy," said George Kell, executive head of the Global Compact.

Adding a significant imprimatur to the initiative, the U.N. Joint Staff Pension Fund has also signed on to the Principles. "The United Nations, for its part, must practice what it preaches," said Secretary-General Annan. "Therefore, I am also pleased to announce that the U.N. Joint Staff Pension Fund, with nearly $30 billion in assets, is signing on to these Principles."

According to the Principles Web site, there are no legal or regulatory sanctions associated with the Principles -- they are designed to be voluntary and aspirational. There may be reputational risks associated with signing up and then failing to take any action, but the commitments are, for most signatories, a work in progress and a direction to head in rather than a prescriptive checklist with which to comply.

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Steven J. Schueth is president of First Affirmative Financial Network, LLC. An independent investment advisory firm registered with the SEC, First Affirmative specializes in serving socially conscious individual and institutional investors nationwide. A former director and spokesperson for the Social Investment Forum, Schueth lives in Boulder, Colo.

Reference to a specific company or mutual fund should neither be considered an endorsement of the company or fund, nor an investment recommendation. Past performance is never a guarantee of future results.