SRI stands for Socially Responsible Investments. This shows the superiority of investors. Inside the company, they use their votes in the AGMs to influence the management from within. Outside the company, they even avoid buying scrips of such companies that are known to indulge in non-humanitarian policies/business actions. The same spirit is captured by MFs when they create the portfolios using sieves designed to exclude socially un-welcome businesses.
Today, it is felt that businesses should turn from economic efficiency & current wealth maximisation to healing the wounds of the society/community or the eco-system itself. This made US companies in 1970s to turn to SRI. in the 1980s, US investors tried to boycott those companies that practiced aparthied in South Aafrica. The USA has about $ 40 billion in SRI oriented MFs by 2005. There are about 230 funds in this class among the 19000 funds of USA. Canada has about $ 65.5 billion in such funds by 2004 itself.
America has a specific index also developed for measuring the performance of such funds. it is called Domin Social Index( DSI); Developed by Kinder, Lydenberg and Domin & CO (KLD) . It has 400 scrips taken on market capitalization basis. This is developed in the same manner as the S&P 500 Index
The scrips are selected in a step by step process. In the first stage, the companies are excluded using quantiative parameters. For example, a company is having more than 2% cash flow from tobacco related sources in its sales is dropped. In the second stage qualitaive fators are used. For example, the usefulness of the product or customer friendliness of the product, labour policies of the company etcc . In the last stage normal economic/financial criteria are applied.
In India, ABN AMRO MF has broght the first fund in thi sclass christened " ABN AMRO Sustainable Development Fund". The fund has done an (Environmental/Social/)ESG rating using 100 questions in each subcategory on environment and social contributions by the company. No personal qualitative measures are involved and strictly goes by market capitalisation & published facts. The back-testing was done for 2000-2006 period prior to launch.
This is their 25th product globally.
read the full text in malayalam in Business Manorama dated 26th March 2007.
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