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New Study Shows Rising Importance of ESG Issues in Investments

A new survey by a leading investment firm shows rising investor attention to environmental, social and corporate governance issues (ESG) and predicts promising client pressures on the way consultants consider companies.

A new survey by the Mercer Investment Consulting, which operates in over 35 countries, showed that 65% of investment managers globally believe the effects of globalization are material to mainstream asset performance, while 62% believe the same of corporate governance issues. 15% believe environmental issues are significant to their business, a number which the survey shows is expected to grow considerably in the next five years.

The study asked 157 investment firms around the world (in total these firms, manage over US $20 trillion) how important environmental, social and corporate governance (ESG) issues are to investment performance, and what their expected client demands for attention to these issues are.

“The environmental and social affects of globalization are being experienced by governments, local communities, and businesses across all regions, as pressures on resources grow. Similarly, corporate scandals have hit headlines in almost all regions, so it is not surprising that these two issues are viewed as the most important responsible investment factors by investment managers,” said Jane Ambachtsheer, Global Head of Mercer IC's Responsible Investment business.

31% of investment managers globally expect client demand for specialist investment strategies built on ESG examination to increase in the next three years, while 38% expect clients to demand that ESG issues be integrated into their standard investment processes. Client demand for specialist ESG services is perceived to be the highest in Europe (39%) followed by the UK and Canada.

Tim Gardener, Global Head of Mercer Investment Consulting, said, “Demand for specialist responsible investment products is likely to depend on the rate at which ESG analysis is incorporated into the mainstream investment process. If managers move rapidly to integrate ESG factors into their processes because of client pressures or otherwise, it is logical that the demand for specialist products may decrease.”

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Socially Responsible Investing (SRI) in Asia

Asian Corporate Governance Association has released a major new report on developments across Asia. The report, overall, has a focus on investors and its perspectives on corporate governance are especially interesting. The following is an excerpt from the report for ACGA’s members:

Country scores - Lowered

A clearer pattern is emerging about the objective status of corporate governance standards and practices in Asia. Whereas a few years ago financial regulators were being quickly praised for introducing new rules and regulations on corporate governance, today it is apparent that many of these rules and best practices have only a limited effect on corporate behaviour. Some of the more important mandatory rules are not being implemented by listed companies or, if implemented, not carried out effectively.

Conversely, in the area of enforcement, traditionally seen as the weak spot in Asian regulatory regimes, it is possible to discern a steady improvement, albeit from a low base. The wide gap between the scores for rules and enforcement is therefore narrowing. Overall, there are two main results from our country scores this year.

The ranking of countries has largely stayed the same as last year, with the exception that Korea has fallen one notch - it is now below Taiwan. And the weighted scores for most countries have trended downwards. Lower scores this year do not equate to a decline in objective corporate governance standards.

On the contrary, we believe that most countries have continued to improve. What they largely reflect is an even more rigorous survey methodology being used this year compared to last. In effect, we are saying that scores in previous years were on the generous side and the actual quality of corporate governance in most Asian markets is somewhat lower than previously assessed.

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American International Group (AIG) Tops CalPERS 2005 Corporate Governance Focus List for Poor Corporate Governance

The California Public Employees’ Retirement System (CalPERS) named five U.S. companies in April 2005 to its “Focus List” of poor financial and corporate governance performers. American International Group (AIG), based in New York, tops the list following allegations of widespread accounting fraud and other corruption that cost CalPERS more than $240 million in losses. Also on the list are AT&T of Bedminster, New Jersey; Delphi in Troy, Michigan; Novell in Waltham, Massachusetts; and Weyerhaeuser in Federal Way, Washington.

“These five companies are now on our radar screen for their poor corporate governance and in many cases poor performance that has economically damaged shareowners,” said Rob Feckner, President of the CalPERS Board. “We will press for needed reforms to restore long-term profitability and investor confidence.”

You can find out more about the list and the five companies by following this link to the CalPERS website.

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Here are some useful websites if you're thinking about investing in a socially responsible fund:

 


 


Useful Sites...


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Transparency International

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