SRI: Are We Blind to Risk in the Financial Sector?
Alexandra Tracy, Chairman
ASrIA
November 2009
The extraordinary economic events of the last year have created a unique opportunity for shareholders to re-examine their investment process and to consider both the merits and the shortcomings of environmental, social and governance (ESG) analysis, especially in respect to financial institutions.
The guiding principles of responsible investment are transparency and accountability. Critics charge, however, that SRI investors have been applying these most stringently in industries where the issues are most easily identified. While they have long been scrutinising natural resource companies because their extraction methods are visible and environmentally suspect, or manufacturing companies where working conditions are sub-standard, it seems that much of the financial sector has been escaping examination.
Thus, during 2008, ESG analysts were giving top ratings to the financial institutions that packaged and traded the mortgage-backed securities that underpinned the financial crisis. A review at Southern Illinois University in September last year on the largest 41 SRI funds in the US found that three of the top eight holdings were financials – AIG, Bank of America and Citigroup.
