MOVING FROM VALUES TO VALUE
Socially responsible investing (SRI) in the United States emerged out of a call from investment clients to match their portfolios to their personal values. SRI products have generally answered this request by simply 'screening out' any companies connected to morally questionable activities, as defined by the client. Companies typically facing exclusion include those involved in alcohol, tobacco, or weapons production, gambling or nuclear power, or egregious environmental or labor abuses.
Once the screens were set, investment clients looked to trained investment professionals to make the determination about which companies would make the grade. A new career path emerged for analysts who focused specifically on this type of 'social' research, whether employed by investment firms or specialized research houses (such as KLD Research & Analytics) that served the SRI investment profession.
More recently, these social research analysts have sought to evolve the field of SRI beyond simple avoidance screening based primarily on business involvement. Many have focused on making differentiations between companies within a sector based on non-financial indicators (whether social, environmental, or governance). Such 'best-in-class' research helps meet the needs of concerned investors. More importantly, this approach also can identify companies more exposed to financial risk or positively leveraged to profit opportunities. As a result, the field of SRI is expanding from a means to project personal values to a tool to detect sources of financial value. As such, SRI is beginning to gain greater resonance with more mainstream retail investors and institutional clients.
THE NEED FOR QUALITY DATA
Many traditional SRI investors are skeptical of a value-focused approach. Gaining credibility for such a strategy rests in large part on the quality of the data that underlies the differentiation analysis. This cannot be a dart-throwing exercise. If the calls are subjective, analysts will lose the trust of their SRI clients and their ability to influence the companies they evaluate. Unfortunately, the state of reliable and comparable non-financial data in the U.S. has not progressed much over the last 20 years. More companies have begun issuing corporate responsibility reports; a few now embrace use of the Global Reporting Initiative's (GRI) sustainability reporting guidelines. But the underlying data provided by companies are often inconsistent from year to year and nearly impossible to compare from company to company.
IMPROVED CSR DISCLOSURE THROUGH COMPANY MEETINGS
One of the ways social research analysts have improved the underlying information on which they base their analysis is by meeting directly with company representatives to discuss a range of corporate responsibility issues. While financial analysts have for years attended company meetings to discuss the latest earnings releases or new product lines, up until recently the only equivalent meetings for social analysts were single-issue dialogues that were the result of a shareholder resolution filed at a company.
But beyond the leadership companies that actively sought to hold meetings, analysts often had difficulty convincing companies to sit down for a corporate responsibility meeting. SRI analysts realized that they needed a new structure to work together to gain the visibility necessary to bring any company to the table.
THE SOCIAL INVESTMENT RESEARCH ANALYST NETWORK (SIRAN)
In the spring of 2004, I joined with a core group of social research analysts to help form a network of analysts to support their individual work — the Social Investment Research Analyst Network, or SIRAN. Analysts at different firms had been working together for years on various issue-based projects, but lacked a more formal way to communicate with each other and gain visibility as a group. We realized that a network strictly for social research analysts would make it easier to coordinate meetings with companies, share best practices on social research, and support our professional development.
By the beginning of 2005, the SIRAN (www.siran.org) was well established, with over 100 participating analysts at 30 different investment firms, research providers, and affiliated investor groups.