Introduction

Okay, let's get real: companies are never going to risk profits in the cause of ethics if they can get away with it. Individual employees would no doubt prefer their company to respect the law, the environment and human rights, but in a sense they are powerless to influence its activities. It's the shareholders that own it that the company answers to - without the shareholders' support, the company has no right to do anything.

This is why socially responsible investment is such an important tool. Companies are bound to maximising the value of their shares, and will pursue policies that achieve this. Ethical investment works by increasing/decreasing the value of a company's shares according to whether its activities are ethical/unethical, thereby encouraging the company to act in a socially responsible way.

For example, disinvestment (getting rid of shares by selling them) in a certain company will drive down the value of its shares by increasing their supply in the stock market. This will be a force for change as shareholders and company management strive to push the value back up again.

On one level, the management executives in the company will be much keener to change company policy because lower share values mean a greater chance that they will lose their jobs. A Chief Executive Officer who cannot deliver shareholder value will not be kept in power - s/he is expected to resign. Also, the remaining shareholders will not stand by while the value of their investments is undermined - they will put pressure on the company to change its policies in order to increase share value by attracting back the interest of those shareholders who sold out because they didn't agree with the company's activities.

Your College will be in charge of a large amount of investment capital, and therefore has a large amount of power. There are no legal reasons the college cannot discriminate in its investment policy (see below) and no reason this should do any damage to your college’s finances. You, and your common room, are stakeholders in your college and can help make it so its resources are used to make companies more ethically aware.

What is Socially Responsible Investment?

Socially Responsible Investment (SRI) is a form of investment that combines investors’ financial objectives with their commitment to social concerns such as social justice, economic development, peace or a healthy environment [UKSIF, 2001].

‘Ethical investment’ is similar to SRI: the two terms are often used interchangeably, although ethical investment is often used to indicate a more stringent commitment to social concerns. When lobbying colleges, we recommend you use the term ‘SRI’.

We hope that the contents of this booklet will indicate that Socially Responsible Investment provides an ideal means for an institution to combine its moral or social principles with its financial interest and its reputation as a responsible and respected part of the wider community.

There are three broad strategies for SRI: screening, preference and engagement (as well as a combination of all three).

Screening

Screening involves selecting a list of “acceptable” companies shaped by a combination of positive and/or negative factors based on ethical, social and/or environmental criteria.

Certain companies may be ‘screened out’ based on specific product or services produced that are deemed unacceptable. If institutions already hold investments in such companies then this approach may require disinvestment (see financial/legal issues discussed below). If not, then a policy may be set in place that would ensure such investments are not made in the future. Companies may also be positively selected by this approach on the basis of their commitment to ethical, social and/or environmental concerns.

Preference

This approach involves rating companies according to a particular SRI policy. Fund managers apply the guidelines where possible and bias investments towards those companies that achieve the highest ratings. This approach is sometimes referred to as ‘best of a sector’.

Engagement

This approach provides investors with an opportunity to influence corporate behaviour, through their rights as shareholders. This can be done with a greater or lesser amount of effort, but a strong-handed approach to active shareholding (through regular meetings and direct dialogue with companies as well as raising issues and tabling motions at AGMs) in line with a specific ethical/social/environmental policy can be extremely powerful, particularly if the institution or individuals concerned hold a considerable standing in society.

Oxford colleges have access to the highest levels of management, both through their reputations as respected and famous institutions, and through the current positions that former members might now occupy. They are therefore in a position to raise environmental and ethical concerns through correspondence and through meetings with company managers. For example, colleges could encourage each company to produce comprehensive social and environmental audits, introduce environmental management systems, and set clear targets which could then be reviewed.

Hybrid approach

Screening out a select number of companies, alongside a policy of active shareholder engagement with other companies is an approach that is often used, largely because huge changes in investment portfolios are unlikely to be sanctioned by trustees initially, who might favour a more gradual process towards SRI. Many institutions concerned about the activities of particular sectors choose to adopt a moderate exclusion policy towards those sectors that are considered ‘irredeemable’ by experts – if the central purpose of a company is to manufacture weapons, for example, this is unlikely to change through an engagement strategy. A moderate exclusion policy can then be coupled with a more robust policy of engagement – an approach proposed by Edinburgh University Student Association in their campaign for SRI (see resources at the end of this guide).

Posted on 22/10/04 by admin