A number of recent events have raised the issue of conflicts of interest in SRI, according to Chris Yates-Smith, research director at Lisbon-based environmental research facility Probus Sigma.
The socially responsible investment (SRI) industry seems to have become more interested in politics. Recently, we had SRI analysts advising not to invest in a well-known electronics conglomerate, which makes benign security equipment, because it had a plant in Israel. The analysts - a well-known SRI ratings agency - said this was somehow against its ethical policies. Now we read that SRI ratings agencies are advising not to invest in the Rupert Murdoch-owned publisher News International group due to the recent events with the UK's The News of The World newspaper.
In my opinion, while personally not endorsing any type of wrongdoings, this sets a dangerous precedent because, prior to any substantive proof being tried and tested in a court of law, the SRI ratings agencies can ruin a company based upon hearsay and emotion rather than tested fact. While News International has the financial ability to withstand this unwarranted attack, many similar companies could go out of business, losing jobs and causing unnecessary social depravation. Somehow, to me, this does not in any way fit any form of social accountability or even the basic tenets of environmental, social and corporate governance (ESG).
Perhaps more worrying is the fact these SRI-based ratings agencies are owned by some very large financial institutions. If these institutions are invested in a competitor or perhaps seeking an acquisition, they can drive down the price very substantially. Could this be why they pay enormous sums for these ratings agencies?
With an estimated €30trn invested under advice from these agencies within a completely unregulated market with no standards, rules or oversight of any kind, perhaps we have to trust their intentions are honourable. However, since some of these leading agencies are owned by the same people who created the subprime debacle, it may be asking a little too much to believe they have suddenly become green, eco and ethical.
Chris Yates-Smith is research director at Lisbon-based environmental research and technical development facility Probus Sigma