After an epic tussle in Bonn last July between 178 nations and the US to save the Kyoto Global Climate treaty, European Union Commissioner Margo Wallström said, “I think we can now go home and look our children in the eye.”1
As a collection of nations with shared borders and economies, Europeans are by necessity aware of how actions in one part of a system affect another – environmentally, socially and financially. An acceptance of an extended community has shaped European capitalism in a more social form than its more aggressive, individualistic American cousin. In retrospect, this has made the remarkable growth of SRI in Europe over the last decade almost inevitable. This special SRI feature explores the growing awareness and uptake of SRI within Europe. What are the key drivers? As we gain a greater understanding of how the environmental and social impacts of companies affect the financial bottom line and our quality of life how can we invest for sustainable growth? What can SRI achieve for shareholders and wider society?

Broader insight new regulations
In Europe, there are now more than 251 retail based social investment funds2 up from 26 in the mid-1980s3. Total SRI assets have increased by 36% from e11.1bn at the end of 1999 to e15.1bn in mid-20014. The retail SRI market in the UK grew to £2.5bn (e4.1bn) in its first 15 years up to 2000. In the past year, it grew a further 40% to £3.5bn and a whole new sector, company pension schemes, now applies SRI criteria to £300bn worth of funds5.
Globalisation and advances in science, technology and communication have rapidly increased our understanding of the impact of business activities. Sustained economic growth is increasingly understood to rely on sustained environmental resources and social inclusion. This means that sustainable development has become a priority issue for international government and business. The rapid growth of SRI, and the increasing interest in corporate social responsibility (CSR) throughout Europe, reflects this growing awareness. Emerging regulations and initiatives at international, European and national level highlight the increasing importance for companies to demonstrate that they understand their corporate social responsibilities.

EU CSR strategy
In June 2001, the European Commission (EC) published a green paper, entitled ‘Promoting a European Framework for Corporate Social Responsibility’. The green paper’s purpose is to promote CSR, both within the 15 member states and internationally. It states that EU member governments should “focus on putting the proper regulatory or legislative framework in place in order to define a level playing field on the basis of which socially responsible practices can be developed”6.
The paper drew numerous responses from government, business and NGO groups that has given rise to The European multi-Stakeholder Forum on CSR now being set-up on an experimental basis. Roundtables to be convened and chaired by the Commission will explore codes of conduct, CSR instruments and standards and CSR reporting. The roundtables are expected to make a significant contribution to promoting a model of corporate social responsibility based on European values.

Eurosif
The EC supported the launch of the European Sustainable and Responsible Investment Forum (Eurosif) in November 2001. The forum unites the forces of existing social investment forums in the UK, France, Italy, the Netherlands and the German-speaking countries – Germany, Austria, Luxembourg and Switzerland. Founding chair Emma Howard Boyd said, “With the growth of SRI expected to accelerate across Europe, Eurosif is ideally placed to help facilitate this.”7
Eurosif’s broad goals include encouraging shareowner action to influence corporate social responsibility; conducting and publishing research on socially responsible investment issues as a means of influencing legislation and public policy; and expanding the network of social investment forums into other EC countries.

UK
The impetus for much of what has been happening in Europe on the SRI and CSR fronts has been UK legislation, passed in July 2000, that requires all pension funds in the UK to report publicly on their SRI policies and initiatives. The regulation under the UK’s 1995 Pensions Act requires trustees to declare in their Statement of Investment Principles: the extent (if at all) to which social, environmental or ethical considerations are taken into account in the investment process. In October 2000, the Social Investment Forum in the UK reported that 59% of British pension funds and local municipal funds incorporate SRI principles into their investment process, either through the fund manager, through engagement (shareholder advocacy), or both8.

Belgium
A new Belgian law took effect from January 2001. It requires annual reporting on investment strategies for the long and the short term and how social, ethical and environmental aspects are being taken into account. Minister of Social Affairs Frank Vandenbroucke stated that “investing in a sustainable way is an important objective that is sufficiently accredited in Belgium nowadays, but it must integrate the government’s policy in the field of sustainable development.”9

France
SRI is now reflected in French legislation on retirement savings contributions and retirement fund regulations. In February 2001 an amendment to the Code monétaire et financier was adopted requiring annual reports to disclose consideration of SRI factors. These proposed changes are expected to come into effect in the winter of 2002. New legislation in March 2002 makes social and environmental issues in their annual financial reports mandatory.

Germany
SRI is an important component of new legislation reforming Germany’s pension system. Certified private and occupational pension schemes now have to report whether ethical, ecological and social aspects are taken into account. The legislation came into force on 1 August 2001.

Norway
The Norwegian government manages some of its assets with SRI guidelines in place. The state’s Petroleum Fund, totalling about Nkr650bn (e85bn) has started to test the concept of SRI with the launch of the Norway Environment Fund. One of Norway’s largest insurers, Storebrand, launched a new SRI fund in February 2002. Director of products Robert Wood said, “We are seeing an increased demand for SRI products in Norway and in all parts of Europe. We felt there was a need to have a local fund.”10
Sweden
Since 1 January 2001 the five largest state-controlled pension funds in Sweden have been required by new legislation to include environment and ethics in their investment policy and report to the government annually with respect to how they are fulfilling this policy. Swedish investment manager Folksam announced in January that it would a screen its entire Skr105bn (e11.4bn) portfolio for environmentally unfriendly companies and for those that violate human rights11.

Switzerland
The Swiss government’s social security system invests about 2.5% of its assets using ethical, social and environmental criteria12.

European indices
The proliferation of SRI indices in Europe demonstrates a robust and growing industry. Building on the success of the Dow Jones Sustainability Index, which was launched in 1999, Dow Jones Indexes, SAM Group and STOXX introduced four new sustainability indices for the European market in October 2001. ARESE, a Paris-based social research firm announced the introduction of the first of a series of new indexes tracking the financial performance of companies in the Euro-zone that are leaders in sustainability. This immediately followed FTSE’s announcement that it was creating a family of FTSE4Good indices in July 2001.
Paul Moody is Head of Business Development – SRI at Morley Fund Management

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