ABSTRACT
There are various reasons for investors to pay attention to environmental and social issues in their investment practices. These include: the potential contribution that a focus on these topics can make to improving investment returns (e.g. through benefiting from themes such as renewable energy); the potential to identify risks that more conventional forms of financial analysis may not identify (e.g. obtaining insights into the quality of a company’s approach to risk management); demand from clients (pension funds, individual investors) for the investor to proactively encourage high standards of corporate responsibility; demand from clients for specific types of investment products (e.g. environmental technology funds); government, trade union and non-governmental organisation pressure for investors to play a more active ‘ownership’ role in the companies in which they are invested; and the potential brand and reputation benefits that may accrue from adopting a leadership position (Business for Social Responsibility 2008; Gitman et al. 2009; Kiernan 2009; Oulton 2009; for historic perspectives on the evolution of investor interest in responsible investment, see Sparkes 2002 and Sullivan and Mackenzie 2006). While the prima facie argument that environmental and social issues can be financially significant is recognised, there is no consensus on how
they actually affect investment returns (Gitman et al. 2009: 7) or on how best to integrate them into investment processes (Business for Social Responsibility 2008). Table 2.1 presents a typology of the major responsible investment strategies presently in use. These range from ‘traditional’ negative screening approaches (i.e. where companies are excluded because of their ethical characteristics) through to the more mainstream approaches of engagement and enhanced analysis that have emerged over the past ten years.1
