Funds Need More Socially Responsible Choices - Study
Date: 14-Jan-05
Country: SWITZERLAND
The study, released on Thursday by Geneva-based World Economic Forum and London think tank AccountAbility, found that investors are bound by conventions that focus on short-term performance and are poorly equipped to consider non-financial factors in decisions.
"Benchmarking within the fund management industry against short-term performance benchmarks that fail to take account of social, ethical, and environmental aspects of corporate performance is increasingly out of step with underlying client interests," the report said.
Recent cases of companies hit by "socially responsible" factors include the world's largest retailer WalMart, which suffered in the wake of a class action lawsuit alleging discriminatory labour practices, the study said.
The share price at US fast food giant McDonalds suffered under obesity and health concerns, but recovered once the company responded convincingly, the report said.
Indeed, broad political disenchantment with the United States has led to recent poor performance in Europe of leading US retail brands, the study said.
"Social and environmental factors can be quite significant drivers of longer term financial performance," the study said.
Funds using socially responsible strategies have grown fourfold in the past 10 years in the United States to over $2 trillion, but the vast majority of funds apply no such criteria, the study said.
The study called for a series of measures to wean the industry off short-term performance indicators. One would have investment fund buyers -- usually pension funds -- require that asset managers analyse non-financial factors.
The authors also called for the creation of an international set of good governance principles for pension funds.