Tuesday, May 12, 2009

Socially responsible investment theory and the developing world


I am attending the Law and Society meeting in Denver at the end of May. I hope to get comments on one of the papers I am presenting. It is tangential to my main research but close to my heart. The thesis is this: Socially responsible investment theories detrimentally affect developing world companies. This requires some explanation.


To begin with, popular investment theories influence the investment decisions of pension managers. Pension managers, more so before the global economic crisis than after, oversee large pools of investment monies. Increasingly, pension mangers are expressing their political ideals by their investment decisions. They avoid ‘bad’ companies and invest in ‘good’ ones. The company they refuse to invest in may reside in the developing world. At the same time, there is a movement to encourage private investment in the South. Can these two ideals be reconciled?


There currently exist notions of sustainability, the green agenda, corporate social responsibility (CSR) and socially responsible investment (SRI), that somehow conflate to form a political movement. They produce public pressure, as well as legislative pressure, to recycle AND to consider these notions when making investment decisions. As a matter of fact, in the UK, this has become pension law. Pension managers must state how and if they consider CSR when making investment decisions. How does all of this affect the developing world?


A UNIDO report says it has a detrimental effect. CSR, as a measurement of corporate appropriateness, creates obstacles for small to medium enterprises (SME) in the developing world. Small budgets do not allow SME's to appear, or indeed BE, socially responsible and profitable. There are shareholders and creditors supporting a company that will return their investment. Who should prevail?


CSR and concepts of sustainability , when employed in the business world, are:


· Ill-defined, yet used permissively,

· Frequently politically hijacked,

· Can be expensive to comply with, and

· Are morally infused.


All of the above give an advantage to media and internet savvy, multi-national corporations, eager not to be regulated, who have developed industry standards to be followed. These are competitors setting standards for everyone.


Save the planet for sure. Don’t do it at anyone’s expense. And do NOT claim you are helping the developing world by imposing impossible obstacles for access to the few existing ladders out of poverty.


See, Peter Raynard, and Maya Forstater, Corporate Social Responsibility: Implications for Small and Medium Enterprises in Developing Countries, UNIDO Report. Vienna 2002


See, Russell Sparkes, Socially Responsible Investment: a Global Revolution, (Chichester:Wiley, 2002)


See also, Richardson, Benjamin, Do the Fiduciary Duties of Pension Funds Hinder Socially Responsible Investment? Banking and Finance Law Review 2007 (22(2) 145-201



4 comments:

  1. True. But does the problem lie in the way it is (mis)applied or is it the nature of the beast? It's like CSR in the supply chain - some companies use it as a criteria to screen suppliers out, and this is bad, but some use it to identify issues and work pro-actively with their supply chain to bring them into compliance with their social codes. Isn't it the same thing with SRI in developing countries? (Too late for your conference, but well, for what it's worth!)

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  2. Thought provoking....maybe it is the fundamental nature of these policies that they are used for good or ill-depending on the user’s intention. I will explore this more. Thanks for the comment!

    That changing nature is tolerable while CSR and SRI are soft law or ideals of business dealing. Once they become hard law, I think that their nature must remain more constant and predictable. Then we can better determine the real consequences of these policies on the developing world.

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  3. The soft law has been invoked in most OECD countries. Since Myners' recommendations to UK pension funds circa 2002, SRI 'disclose what you want' legislation has been passed in most European countries, also in Australia and New Zealand. Its articulation with poor economies is much under-researched area and deserving of focused attention, particularly World Bank practices. I wonder if you would be interested in submitting an article on this topic to a new peer-reviewed interdisciplinary journal on sustainable finance and investment I am planning? If of any interest, please contact me:
    _____________________

    Matthew Haigh
    PhD
    Associate Professor
    Aarhus School of Business, Aarhus University, Denmark
    mhaigh at asb.dk

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  4. Small Business owners are largely forgotten. That’s why I only focus on them. I have experience several members of my family file bankruptcy due to small business failures. I also I suffered through 2 destroyed businesses due to failure however, in my failings I have learned some of the secrets to success. (Who can say they know it all?)


    www.onlineuniversalwork.com

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