Dilemmas in Responsible Investment

Dilemmas in Responsible Investment

By: Celine Louche and Stephen Lyndberg

ISBN: 978-1-906093-51-8

Publisher: Greenleaf Publishing

This review first appeared on CSRwire.com on 21st December 2011

Book Description

Dilemmas in Responsible Investment examines the problems responsible investment (RI) practitioners face daily. It emphasises the importance of asking the right questions as well as getting the right answers; and the importance of process as well as product. The authors pay attention to the diversity of opinion and variety of approaches available. They also raise fundamental questions about the very purpose of investment and the responsibilities of investors, both economic and societal.

Although dilemmas in RI are not always easily resolved, Louche and Lydenberg believe that they are also a source of valuable and necessary debate about the appropriate role of corporations in society and the ability of the financial markets to appropriately serve the societies in which they operate. Such dilemmas provide a valuable framework for public debate and can encourage the emergence of innovative answers and approaches.

Commentary

Social Responsible Investment sounds easy enough.

Step 1: Negative screening, positive screening, decide and place your cash where it will do what you want it to do.

Step 2: Review the financials with set values in mind and pick your portfolio.

Step 3: Against sin stocks, for the environment, what could be simpler?

When you read Dilemmas in Responsible Investment, you realize that it isn’t as simple as it sounds. While written for responsible investment practitioners, the book has much to teach anyone with an interest in how money makes the sustainable world go round.

Dilemma 1: Conventional Money Manager & Responsible Investment

You are a conventional money manager and have become interested in the responsible investment market. You advertise your responsible investment services and four different types of potential clients approach you.

A single working mother, passionate about sustainability issues with a modest sum to invest; a wealthy investor, who is toying with the idea of directing his investments towards a more environmentally friendly portfolio; a CFO for a small church with an endowment to invest and a focus on fairness and societal justice; and the head of the board of trustees for a large pension fund, pressured by retirees not to invest in companies that manufacture landminess.

How do you prepare for these meetings? You can either start with one general presentation for all four clients or tailor your response to each one's specific needs right? Or you can target your presentations with a focus on ethical issues or sustainability issues, highlighting business risk/opportunity elements and, therefore, potential consequences for your clients' return on investment.

Dilemma One is a taster for the series of progressively more specific and detailed dilemmas or case studies (12 in total), which teach us the detailed considerations that come in to play when responsible investment is the subject. This first dilemma shows how each potential responsible investor comes with certain expectations, a greater or limited understanding of responsible investment options and the need for investment practitioners to develop customized investment products to accommodate different needs.

Dilemma One may not sound that complicated, however, so let’s consider some other dilemmas that come up:

1. A client has read about a manufacturer of electronic games in China which has abusive labor conditions, and wants you to sell the stock. However, the company in question denies the allegations and the facts are not altogether clear. Sell, buy time to investigate or tell your client not to believe everything he reads?

2. Ten years ago, you sold a large successful company that was criticized for poor labor conditions, poor environmental record, discrimination in the workplace and more. In the two years, the company has apparently turned things around and is now talking CSR. Do you continue to stay away or recommend your clients to invest?

3. You want to develop a Responsible Investment product that will have global appeal. However, responsible investment standards are different in several countries and many have conflicting demands or standards. How do you balance local values and practices in a single new investment product?

4. Your client, an environmental foundation, wants you to hold back on any investments, which include use of nanotechnology. She fears that use of nanotechnology can be potentially harmful with unpredictable consequences for human health and the environment. Scientists are divided on the issue – there is no clear cut case against nanotechnology. Do you immediately sell all nanotechnology-related stocks or do you try to persuade your client that it is premature to exit?

This is but a small selection of the interesting questions posed in the field of responsible investment.

In the book, Dilemmas in Responsible Investment, Louche and Lyndenberg dissect these issues from multiple angles and offer possibilities for action and the implications of each. A fascinating read, like I said before, for anyone even remotely interested in understanding the connections between sustainability, ethics, financial services and our global economy.

elaine cohen, CSR consultant, Sustainability Reporter, HR Professional, Ice Cream Addict. Author of CSR for HR: A necessary partnership for advancing responsible business practices Contact me via www.twitter.com/elainecohen  on Twitter or via my website www.b-yond.biz/en

The HIP Investor

The HIP Investor :  Make Bigger Profits by Building a Better World

By R. Paul Herman

Published by John Wiley and Sons Ltd

ISBN: 978-0-470-57521-3

This review was first published on CSRwire.com on 6th May, 2011

Description

In The HIP Investor: Make Bigger Profits by Building a Better World, R. Paul Herman - creator of the HIP methodology and a leading investment manager - introduces a systematic approach for investors that is designed for more attractive profits and positive human, social, and environmental impact. Based on comprehensive research of the S&P 500, HIP assesses and values measurable results over well-intentioned policies and philosophies, and shows how higher-performing companies can deliver both human impact and profit for shareholders. This HIP approach is shown to outperform the financial returns of the S&P benchmark in both up and down markets.

Written for investors of all types and their financial advisors, this detailed guide will help you construct a portfolio of firms that are boosting their bottom line by meeting five core human needs. Leading firms benefit customers, engage employees, and deliver sustainable, profitable growth for their investors through innovative products, measures, and decision making. Each chapter reveals a fundamentally strong analytical approach enriched with real-world case studies that show you how your portfolio can capture substantial financial returns and generate positive impact while also mitigating risks.

Commentary

Whether you are an investor or not, The HIP Investor will teach you a lot about how businesses can make profit while having a positive impact on society and environment. The Hip Investor is not a theoretical discussion. It's a highly practical, well-researched, coherent encyclopedic guide, full of examples of how businesses have leveraged their capabilities to create better business and a better world. The proof is that the HIP (human impact and profit) investment portfolio outperforms multiple benchmarks , for example, the HIP 100 has done 4 percent better than the S&P 100 every year between mid-2004 and 2009.

The HIP methodology was masterminded in 2004 by R. Paul Herman, after he gained a finance degree at Wharton and worked at McKinsey & Co. on incentive regulation in the energy sector and advised Fortune 500 corporate clients on investments. The HIP method identifies five core dimensions of the way companies drive financial, social and environmental value through innovating new products that improve the quality of life, operating with higher environmental efficiency and effectively managing their social impacts. An analysis of the extent to which a company embraces the concepts and practices in these five dimensions can produce a HIP Scorecard with over 20 indicators whose value indicate positive results for society, thereby providing a useful tool for investors, because, "typically, the better the human impact performance, the bigger the profits". The HIP methodology overlap to a large degree with other leading rankings of corporate responsibility or sustainability practices, though it also offers a fresh way of looking at companies and their impacts, providing specific quantifiable metrics in each of the five HIP dimensions.

The five core dimensions of the HIP methodology are:

1.Health: refers to both physical and mental well-being, including quality of life.

2.Wealth: encompasses ways for people to earn more, save more or better secure their financial future.

3.Earth: covers the water we drink, the air we breathe and the overall ecosystem balance.

4.Equality: seeks fair representation, whether classified by gender, ethnicity or income class.

5.Trust: includes open, transparent information and ethical and respectful behavior.

The HIP investor builds an investment portfolio using data collated and analyzed in these five categories to produce an overall performance scorecard, showing how HIP a company is, and how the company's HIPness stacks up against other companies in the same sector or in general.

The author has not been content to simply explain the methodology. The HIP Investor is one of the most extensive and detailed catalogs of corporate sustainability-related practices as I have read in the past few years. Examples abound from almost every company you can think of, from the leaders to the laggards, culminating in a persuasive argument which substantiates the need for a HIP mindset, HIP practices, HIP analysis and HIP investing. Additionally, the author presents a set of sector "face- offs" comparing the HIP scores of giants such as PepsiCo / Coca Cola, Procter and Gamble / Colgate-Palmolive, Dow / DuPont, Raytheon / Lockheed Martin, Verizon / Sprint, J.P. Morgan Chase / Bank of America, McDonald's / Starbucks, Microsoft / Apple, Walmart / Target and Chevron / ExxonMobil, which have also been published on Fastcompany.com.

In the final sections of the book, the author teaches potential investors how to build a HIP investment portfolio, maintaining that the HIP approach leads to more appropriate valuations than sector-weighted approaches as adopted by S&P 500 and others and providing insight on a wide range of investment options. Finally, R. Paul Herman ends up with his optimistic view that a HIP world is possible and that investors have the power to create it and reap the rewards, both in financial and non-financial terms. A HIP world is one where corporations compete in areas which add positive social and environmental impact. With $175 trillion in global financial assets available to investors, Herman maintains that there is certainly a sufficient supply of capital to make a HIP difference.

R. Paul Herman makes a convincing argument for HIP. Understanding companies from a perspective of the three core HIP investor questions (How HIP are the company's products? How is the company measuring its human, social and environmental impact? How do existing management practices reflect a HIP approach?) presents a novel way of evaluating companies' long-term sustainability and predicting their long-term financial performance. Using the 5 core HIP scorecard factors to assess companies provides a tangible framework for investment decision making. Even if you are not an investor, you are probably a customer, an employee, a supplier or even a community member and the HIP approach can help you decide whether to engage with a company in one way or another. I guess that to write a book about HIP investment, you have to be pretty HIP yourself, so I find myself compelled to round of this review with three cheers - HIP HIP Hurray - for the highly HIP R. Paul Herman and The HIP Investor.

elaine cohen, CSR consultant, Sustainabilty Reporter, HR Professional, Ice Cream Addict. Author of CSR for HR: A necessary partnership for advancing responsible business practices Contact me via www.twitter.com/elainecohen  on Twitter or via my website www.b-yond.biz/en