Socially Responsible Investment, an opportunity for Luxembourg

1. Socially Responsible Investment, an opportunity for Luxembourg Bernard Bayot

2. www.rfa.be Questions • What are the social and environmental criteria of a responsible investment ? • How can a SRI fund be rated ? • Is the creation of a national or European label feasible?

3. www.rfa.be What are the social and environmental criteria of a responsible investment ? – Definition Socially Responsible Investment (SRI)‏ = Any form of investment which does not meet solely financial criteria but also social, ethical and environmental needs.

4. www.rfa.be What are the social and environmental criteria of a responsible investment ? – Some history • 1920 USA : « sin stocks ». • 1970-1980: USA / Europe : SRI= boycott tool(against the Vietnam War, anti-apartheid in South Africa). Exclusion of those companies. • 1990: SRI = means of tending towards a sustainable development of companies. Selection of the companies proposing a real social responsibility(CSR).

5. www.rfa.be What are the social and environmental criteria of a responsible investment ? – Overview • 1987 Brundtland Commission– World commission on the environment and the development “Development which meets the needs for the present generations without compromising those of the future generations” • 1992 Rio – First Earth Summit Sustainable development principles • 1997 Kyoto protocol • 2002 Johannesburg – Second Earth Summit Setting up of the principles of sustainable development Economy Social Environment

6. www.rfa.be What are the social and environmental criteria of a responsible investment ? – First generation • Negative criteria: the manager of the fund excludes from the composition of the portfolio companies involved in certain activities, services or products. • The investor is guaranteed that his money is not invested, for example, in weapons-trade or nuclear energy production. Beyond that, the companies are not the subject of a in-depth analysis. • These type of funds give the investor the possibility to send a signal of protest, but this formula is not well adapted to give a positive incentive to the companies. The funds of the first generation are especially popular in the Anglo-Saxon world.

7. www.rfa.be What are the social and environmental criteria of a responsible investment ? – Second generation • Positive criteria, directed towards a specific sector or topic. • Here research is done to find companies that are particularly performing well in a determined field, for example, by following an outstanding industrial relations policy or by putting considerable effort in favor of ecological production. • For these funds, the companies are analyzed only according to one or several aspect(s) of a sustainable company.

8. www.rfa.be What are the social and environmental criteria of a responsible investment ? – Third generation • The funds are quoted “sustainable” in the sense that the study of these funds focuses on all the fields of a sustainable company. • On that basis these funds choose the companies which count among the best of their branches of activity. • The study is also directed towards internal policy like staff relations and the relations with society at large, as it scans the efforts in the field of environmental ethics and the ethics of the economic policy of a company.

9. www.rfa.be What are the social and environmental criteria of a responsible investment ? – Fourth generation • These Funds are like those of the third generation. • The rating lies in the quality of the study and the evaluation methodology. • The central element of the study of the fourth generation is the communication with the “stakeholders” of a company: shareholders, leaders of the company, workers, trade unions, customers, suppliers, residents, members of NGOs promoting environment, peace and the third world.

10. www.rfa.be What are the social and environmental criteria of a responsible fund ? - The thematical funds Best in class >< The class is the best Funds offering solutions to the big challenges that are raised in specific fields like clean and efficient energy production, water and the fight against pollution, waste and the commodities management. The first movers have a competitive advantage, especially in comparison to companies that ignore these problems that will eventually have to explain themselves, some before the authorities, the media and the general public, with all the economic risks that are implied.

11. www.rfa.be How can one SRI fund be rated ? Selection methodology • Annual reports, press reviews, Web site, financial reviews,… • Questionnaires • Companies visited Information search • Sector approach • Best in class • Best 50% • … Evaluation process Rate Companies List Portfolio Universe Construction

12. www.rfa.be How can one SRI fund be rated ? Stakeholder consultations • Fourth generation • Questionnaire • Contact with the company itself > Dialog with departmental executives • Contacts with the`stakeholders' that are directly and indirectly concerned by the company’s activity: workers, trade unions, members of movements fostering the environment and the third world…

13. www.rfa.be How can one SRI fund be rated ? Independence and evaluation control • In-house departments in the banks, asset management companies • Potential conflict of interests • Need for massive investment to be credible • Specialized external offices of research (rating agencies, screening offices) • Independence • Network based, on a world level, local analyses of the companies.

14. www.rfa.be Is the creation of a national or European label feasible?The Ethibel label • Label for sustainable financial products which invest only in the companies included in the register of Ethibel investment. • Founded in 1992 on the initiative of NGOs active in the field of the alternative financing, the environment, the movement for peace, the movement for the third world and other fields of social issues. • Since the end of 2005, Forum ETHIBEL still selects stocks and bonds for the Ethibel label in an autonomous and independent way, on the basis of study of sectors carried out by Vigeo.

15. www.rfa.be Is the creation of a national or European label feasible ?The Ethibel experience • Evaluation of the companies in four fields: the social policy, the environmental policy, the external industrial relations policy and the ethical-economic policy. • Controversial activities • arms, nuclear power, gambling and tobacco > exclusion • dangerous chemical substances, pornographic industry, GMO in the food, alcohol and ill treatments of animals > close examination but not automatic exclusion. • Evaluation of states in three fields: environmental protection (for example the indicator “protocol of Kyoto”), social protection and solidarity (for example indicators “index of Gini”, “degree of illiteracy”) and development of the legal framework and good governance (for example the indicator “Civil laws and Policies pact”).

16. www.rfa.be Is the creation of a national or European label feasible ?The Fineurosol project The European label of the solidarity-saving which is dedicated to any form of savings and investment that is socially responsible, aims at supporting social cohesion by financing activities of the social economy, by means of a mechanism of solidarity, with total transparency for the subscribers. With this objective, the labelled products of financial savings projects and companies provides an added-value for humans, culture and/or the environment. The objective is to label financial savings products and companies that are providing an added value to people, culture and the environment. Program supported by the European commission in 2006. Launching in 2008.

17. www.rfa.be Is the creation of a national or European label feasible ?The Fineurosol project • saving, investment or deposit product; • Which aims at supporting social cohesion by the financing of activities of the social economy; • Solidarity mechanisms, on the capital and/or the incomes; • Must be realized in a socially responsible way; • Completely transparent product management for the subscribers; • Expenses linked to the product should be lower than the common practices on the market.

18. Contact: Bernard Bayot,director bernard.bayot@rfa.be