Page 3: Socially Responsible Investment (SRI)
Socially Responsible Investment is one important way of encouraging and supporting firms that are already taking a responsible approach towards their contribution to sustainable economic growth. SRI is also a good way of persuading firms to change their ways. Henderson Global Investors believes that SRI is one of the most effective ways of bringing about a change in attitude.
Henderson Global Investors is involved in SRI for some very sound reasons. SRI makes good business sense. Experience has shown that the financial returns from investing in companies that are run in a socially and environmentally responsible manner are more than equal to the returns available from those firms with a rather less caring approach.
Henderson Global Investors understands why SRI produces good results for investors. Every year when drawing up their annual reports, companies need to assess their own performance. Companies that do this solely or mainly in terms of this year’s financial results tend to be rather less forward looking than those companies that have already adopted a broader approach to evaluating their overall performance.
The companies which are most likely to survive the next twenty years are those that are already spending time and money in identifying, protecting and sustaining the factors that are contributing to their present success. Well managed companies are already asking themselves ‘In what ways have our activities this year had an impact, not just on our profits and on the dividend we can pay to shareholders, but also on our customers, employees, suppliers, the localities in which we operate and our ability to do well in the future?’
Companies that take this approach are also likely to be those that governments will want to welcome and encourage in future. This is partly because governments want to avoid having to put right the social and environmental damage that thoughtless, uncaring business practices create.
Concern for the environment
The high returns being earned by investment funds placed with socially responsible companies demonstrate that, contrary to popular belief, it is possible to demonstrate concern for the environment, future generations, and ‘green issues’ without becoming penniless in the process. Being a socially responsible business or a supporter of socially responsible businesses does NOT need to become a formula for finishing up in a bankruptcy court. Companies that manage their social and environmental impacts, as well as their financial matters, are more likely to be able to operate their business more efficiently and effectively.
In operating its SRI portfolio, Henderson Global Investors applies a set of criteria. It looks for companies that:
- Are in sectors of the economy benefiting from, contributing to, or best adapting to the need to provide the world with sustainable economic development, e.g. health care provision, education provision, mass transport, renewable energy, water management; i.e. industries of the future
- Show up well when assessed against conventional measures of financial performance, e.g. return on capital employed, profits as a percentage of turnover, labour productivity
- Exhibit ‘best practice’ within the sectors in which they operate; e.g. are taking into account the social and environmental impact of their operations when evaluating their own performance, i.e. best in class
- Show a willingness to engage in a dialogue with institutional investors, and particularly with Henderson Global Investors’ expert researchers in sustainable economic development
- Recognise and accept that a company’s investors have a legitimate interest in how it operates, e.g. in the steps the company takes to safeguard human rights both for its own employees and also for people employed by its suppliers.