SRITeam 1Arun S (08aa02)Karthik R (08aa13)Saravana Kumar G (08aa33)Siva M (08aa36)Sravan D (08aa38)

Meaning Socially responsible investing, also

known as socially-conscious or ethical investing, describes an investment strategy which seeks to maximize both financial return and social good.

Areas of Concern Environmental Social Justice Corporate Governance

Promotes Environmental Stewardship Consumer Protection Human Rights Diversity

Origin & Development 1758 – Quakers (Religious society of

friends) "The Use of Money“ – John Wesley Religiously motivated – Guns, Liquor,

Tobacco

Modern SRI movement 1960s Dr.Martin Luther King – Economic

Development Project Montgomery Bus Boycott Operations Breadbasket Project Phan Thi Kim Phuc – Dow Chemicals

Post 1970s Equity for Women Civil Rights Labour Management Issues Nuclear Power Automobile Emission control

Origin of Real SRI Multi-employer Pension Fund Presidential Candidates – orientation

towards Pension Investment

1990s Environmental Sustainable Development Ceres Organization – A network

Investors Environmental Organizations Other Public Interest Groups

Annual SRI Rockies Conference - since 1989

First Affirmative Financial Network

Modern Application SRI – Booming in USA and UK Socially screened Portfolio $2.71 trillion SRI assets increased by 18% other

assets <3% As of 2007 - 1/9th of USD invested in SRI Estimates - $11 Trillion by 2011 in US

Ethical Investment in UK 1985 – Friends Provident Over 90 such Investment Funds were

created Ethical Investment Research Service –

GBP 6.7bn

Government Controlled Funds Pension Funds Pressurized

Ethical Corporate Behavior Rights of Workers Environmental Concerns Avoid violation of Human Rights

The Government Pension Fund of Norway Campaign Against Arms Trade

Socially Responsible MF Socially Screened MF grew by 19% >51% of the Fund are from newly

identified Assets Socially Screened MF grows on net basis Other MF Contracts

Community investing Investment directly in to Community based

Organizations Investors capital to finance or guarantee

Loans to whom it was refused Used for

Housing Small Business Creation Education or Personal Development

Provides Training & other Support – for Effective Utilization

Investing Strategies

Negative Screening Excludes investment in certain Securities Social and/or Environmental criteria Ex- Investment in Tobacco Company Domini 400 Social Index vs S&P 500

Returns 18.54% to 16.95% “Sin – Stocks” are banned

Divesting Act of removing stocks from portfolio Mainly based on

Ethical & Environmental Hazards

California State Teacher’s Retirement System Removal of >$237mn in tobacco holdings

Shareholder Activism Positively influence Corporate behavior Initiating Conversations with corporate

management on issue of concern and voting proxy resolution

Working cooperatively – to improve financial performance and enhance well being of Stakeholders

Positive Investing - Sustainability New Generation of SRI Investment in Activities and companies –

with positive social impact Stock selections on issues like

Social Justice Environmental concern

But without sacrificing Portfolio Diversification and Long-term Performance

Global Context Investment in companies with international

Operations Rank of Social Investors growing Organizations like

Social Investment Forums in US Social Investment Organization in Canada EuroSIF in E.U Associate for Sustainable and Responsible investment in

Asia Responsible Investment Association in Australia

UN Environmental Program – Principle of Responsible Investment –on ESG factors in investment

PRINCIPLES FOR SRI

United Nations Principles for Responsible Investment (UNPRI)

A set of global best practice principles for responsible investment.

Provide a framework for achieving better long term investment returns and more sustainable markets.

Considerations (ESG): Environmental Social Corporate Governance

UN Principles for Responsible Investment (Contd…)

Drafted by a group of the world’s largest institutional investors.

The principles reflect the core values of the group of large investors whose investment horizon is long term, and whose portfolios are highly diversified.

UN Principles for Responsible Investment (Contd…)

There are 6 voluntary principles. Underpinned by a set of 35 possible

actions that investors can take to integrate ESG considerations into their investment activities.

The Six Principles Will incorporate ESG issues into investment

analysis and decision-making processes. Will be active owners and incorporate ESG

issues into our ownership policies and practices. Will seek appropriate disclosure on ESG issues

by the entities in which we invest. Will promote acceptance and implementation

of the Principles within the investment industry. Will work together to enhance our effectiveness

in implementing the Principles. Will report on our activities and progress towards

implementing the Principles.

THE POSSIBLE ACTIONS

1. Will incorporate ESG issues into investment analysis and decision-making processes.

Possible actions: Address ESG issues in investment policy

statements Support development of ESG-related tools, metrics,

and analyses Assess the capabilities of internal and external

investment managers to incorporate ESG issues Ask investment service providers (such as

financial analysts, consultants, brokers, research firms, or rating companies) to integrate ESG factors into evolving research and analysis

Provide ESG training for investment professionals

2. Will be active owners and incorporate ESG issues into our ownership policies and practices.

Possible actions: Develop and disclose an active ownership policy

consistent with the Principles Exercise voting rights and developing

engagement capabilities. Participate in the development of policy and

regulation (such as promoting and protecting shareholder rights)

Engage with companies on ESG issues

3. Will seek appropriate disclosure on ESG issues by the entities in which we invest.Possible actions: Ask for standardised reporting on ESG issues

(using tools such as the Global Reporting Initiative)

Ask for ESG issues to be integrated with annual financial reports

Ask for information from companies regarding adherence to relevant norms (such as the UN Global Compact)

Support shareholder initiatives and resolutions promoting ESG disclosure

4. Will promote acceptance and implementation of the Principles within the investment industry.Possible actions: Align investment mandates, monitoring

procedures, performance indicators and incentive structures to comply with PRI

Communicate ESG expectations to investment service providers

Revisit relationships with service providers that fail to meet ESG expectations

Support regulatory or policy developments that enable implementation of the Principles.

5. Will work together to enhance our effectiveness in implementing the Principles.

Possible actions: Participate in networks and information

platforms to share tools, pool resources, and make use of investor reporting as a source of learning.

Collectively address relevant emerging issues

Develop or support appropriate collaborative initiatives

6. Will report on our activities and progress towards implementing the Principles.

Possible actions: Disclose how ESG issues are integrated with

investment practices Disclose active ownership activities (voting,

engagement, policy dialogue etc..) Disclose what is required from service providers in

relation to the Principles. Communicate with beneficiaries about ESG issues

and the Principles. Report on progress relating to the Principles using

a 'Comply or Explain' approach

OTHER APPROACHES

Nordic Approach Practiced mostly in the Scandinavian

Countries. Categories:

Exclusion Best in Class Engagement

Nordic Approach (Contd…)Guidelines for SRI: Identify companies in the fund portfolios that

violate the UN Global Compact and international norms for corporate responsibility.

Exercise active ownership – Dialogue. Divestment – Last option (if active ownership

fails).

The Sullivan Principles The Sullivan Principles are a code of conduct created in

the mid-1970s for corporations doing business in South Africa.

Conceived by Leon Sullivan, an activist for equal employment among African-Americans and a member of the board of directors of GM Corp.

The Principles became a tool for anti-apartheid activists to pressurise corporations operating in South Africa.

Actions: Refusal of cities and states to purchase goods from

companies with South African operations. Divestment of shares.

The Sullivan Principles Express support for universal human rights in the

communities in which they operate. No discrimination based on color, race, gender,

age, ethnicity or religious beliefs. Promote fair competition Work with governments and communities in

which they do business to improve the quality of life of those communities.

Promote the application of the Principles by parties with whom the company does business.

EFFECTIVENESS

A Responsible Company• It is run for and can be seen to be run for the benefit of

profit, people and planet.• It integrates responsible business practice so that it is

built in to business purpose and strategy rather than being a bolt-on to business operations.

• Employees value it as a great place to work.• Customers and suppliers value it as a good business to

do business with.• The community values it as a great neighbour.• Investors and financiers value it as worth investing in.• It has a good health and safety record.• It has environmentally friendly premises.

How to bring Effectiveness1. Recycle printer and toner cartridges – or use continuous ink systems2. Buy and use fair trade products – tea, coffee, etc3. Buy materials and from suppliers that use sustainable sources4. Look at how your staff travel to work – walk, drive, bus, cycle etc5. Ensure Lights, computers and other equipment are switched off

when not in use6. Pay staff, suppliers and creditors on time7. Turn the heating or air conditioning down a degree8. Replace lighting with low energy bulbs – and turn off at night9. Print and photocopy only when necessary and double-sided – only

print the first page of emails10. Encourage support for local not-for-profit and community based

organisations.11. Set up flexible working

Benefits for business• Attracting, retaining and developing motivated and

committed employees.• Winning and retaining consumers and business

customers.• Improving business reputation and positive publicity.• Maintaining and improving their licence to operate

from the local community.• Cost and efficiency savings.• Networking and speaking opportunities.• Anticipating future legislation and protecting

yourself.

Index Over a long term, investors’ need not

sacrifice their profits. SRI can be done by investing in Domini

400 Social Index. This index has 250 of the S&P 500 companies.

This has outperformed the S&P 500 index over the ten years of its existence.

Portfolio Management Two Broad Categories

Qualitative criteria Exclusionary criteria

Qualitative Criteria – positive and best in class screening

Exclusionary criteria – negative screening

Qualitative Criteria Some Examples:

Community Diversity Employees Relations Environment Human Rights Product

Exclusionary Criteria Some Examples

Alcohol Tobacco Gambling Military Nuclear Power Fire Arms

When applying negative screening policy it leads to exclusion of 17% of the 650 stocks

Buying stocks with high social responsible ratings and selling the ones with low social responsible ratings.

Abnormal high returns of around 8.7% can be obtained by incorporating best in class screening.

SRI – INDIAN SCENARIO• In India, socially responsible investing is

still at a very nascent stage• It is expected to grow with the maturity

of our financial markets• Niche groups of investors will look

beyond profits. • Mahatma Gandhi – commerce without

morality one among seven sins

India in line with UN• To incorporate environmental, social and governance

(ESG) issues into investment analysis and decision-making processes.

• To be active owners and incorporate ESG issues into ownership policies and practices.

• To seek appropriate disclosure on such issues by the entities in which investment is made.

• To promote acceptance and implementation of the Principles within the investment industry.

• To work together to enhance effectiveness in implementing the Principles.

• Report on activities and progress towards implementing the Principles.

SRI trend in India• Compelling need towards such investments and

organizations• “Voluntary proactive compliance” – a good start• Insurance companies, mutual funds and other

investment advisers should start by disclosing information

• Companies raising money from the public should disclose their performance on pre-identified environmental factors and on the returns to society.

• Investors recognise and benefit from the unlocked SRI return value of the firm.

Recent SRI initiative in India• E-chaupal initiative• The initiative brings to the farmer better

access to markets and information on agriculture practices

• Thereby, better realisation for their produce. This breaks the shackles of fragmented land holdings, poor infrastructure, and numerous intermediaries required to bring the produce to the markets.

Social responsible investment companies

• Auto Ancillaries: Sundaram Clayton Ltd.Automobiles: Ashok Leyland Ltd.Banking: Union Bank Ltd.Cement: ACC Ltd.Chemicals: Kansai Nerolac Paints Ltd.Computers: Moser BaerConstruction: GMR Infrastructure Ltd.Electronics: Siemens Ltd.HeavyEngineering: Larsen and Toubro Ltd.Financial Services: HDFC Ltd.FMCG and Consumer Durables: Dabur India Ltd.Engineering: Praj Industries

• Iron and Steel: Tata Steel Ltd.Logistics: Transport Corporation of India Ltd.Metal: Tinplate Co. of India Ltd.Oil and Gas: Bharat Petroleum (BPCL)Paper: Ballarpur Industries LtdPharmaceuticals: Jubilant Organasys Ltd.Polymers and Plastics: Jain Irrigation Systems Ltd.Power: Suzlon Energy Ltd.Software and ITES: Infosys Technologies Ltd.Telecommunications: GTL Ltd.Textiles: Arvind Ltd.Trading: 3M India Ltd.Miscellaneous: Titan Industries Ltd

Sustainability reports of Infosys

Key focus areas of Infosys Creating an enabling environment Creating equal opportunity environment Creating an inclusive environment Building a transparent work culture Ensuring health and safety of

stakeholders

Social responsible investment areas of Infosys

Health Care

Arts & Culture

Targeted Inclusive Growth

Rural UpliftmentEducation

Performance of SRI companies

Indian SRI companies

Dividend yield

INFOSYS 0.90DABUR 1.10L & T 0.69BHARAT PETROLEUM

1.22

TATA STEEL 2.47

Exploiting Indian companies

Dividend yield

ITC 1.52HUL 2.92SATYAM 3.25SPIC NILSIEMENS 0.79

Future of SRI in India• The SRI client base is expected to

expand over the decade driven mainly by institutional investors.

• Also niche retail markets like socially responsible consumers, young people , activists, minorities etc .

• Many believe that “everyone” will be a SRI consumer in future

• Due to growing awareness of sustainability issues

Emerging SRI Funds in India

• Sustainability Funds that incorporate social , environmental and corporate governance analysis

• Long-term Value Funds• Faith-based Funds.• Green mutual funds

Future of SRI products in India• Every asset class will have an SRI equivalent in future• Hedge funds • Asset allocation funds• Municipal securities funds• Insurance products such as variable annuities• Sustainable large cap• SRI family of income trusts• Real estate• Banking• Sustainable venture Capital• Urban conservation CI products• Exchange traded funds• Sustainability index products

Forces driving evolution of SRI’S in India

Consumer Activitism Shareholder and investors pressure Competitive advantage

Consumer Activitism The environment and human scandals Consumers and employees prefer companies doing the

right thing Environics survey on public expectations on corporations the role of business is to make profits and create jobs; however, the role of business is also to help build a better

society punishing a specific company perceived as not being

socially responsible; respondents had avoided the products of a specific

company or spoken out to others against the company Meanwhile, consumers were just as likely to “reward” a

company perceived as socially responsible.

Stakeholder and Investor pressure Investors are calling for disclosure of

environmental risk, recognizing that environmental risk often translates into financial risk.

Investors do not want financial institutions lending money to “environmentally doubtful projects

This call by investors and insurers for greater disclosure contributes to increasing environmental performance concerns within companies

Competitive Advantage Potential competitive advantage to be

gained by responding to stakeholder expectations for environmental performance

Issues that many managers such as environment, diversity, human rights and community, are hard for business

Managed well, these issues can be a source of competitive advantage.

Opportunities and challenges for SRI

PUBLICLY TRADED COMPANIESOPPORTUNITIES Shareholder concern on SRI issues Greater scrutiny brought by

accountability to share holdersCHALLENGES Less flexibility to demonstrate leadership

in SRI activities

Opportunities and challenges for SRI

PRIVATELY HELD COMPANIESOPPORTUNITIES Visionary and dynamic leadership Autonomy to do things differentlyCHALLENGES Less accountability and disclosure to

public Fewer avenues for external audience to

effect change

Thank you