Hostname: page-component-78c5997874-94fs2 Total loading time: 0 Render date: 2024-11-08T04:49:02.267Z Has data issue: false hasContentIssue false
  • English
  • Français

Socially Responsible Investing for Sustainability: Overcoming Its Incomplete and Conflicting Rationales

Published online by Cambridge University Press:  13 August 2013

Benjamin J. Richardson
Benjamin J. Richardson*
Affiliation:
Faculty of Law, University of British Columbia, Vancouver, BC (Canada), and Macquarie University Law School, Sydney, NSW (Australia). Email: [email protected].
Get access Rights & Permissions [Opens in a new window]

Abstract

In the wake of the Global Financial Crisis and worsening collateral social and environmental problems, socially responsible investing (SRI) has garnered more interest internationally as a potential civilizing influence on the financial economy. In particular, SRI is increasingly conceptualized as a means to promote environmentally sustainable development by disciplining financial markets to be more attentive to their ecological impacts. In this sense, SRI emerges as a putative form of transnational governance that utilizes non-state actors and mechanisms to promote sustainability in an economic sector that traditionally has had little accountability for its environmental performance. But as a largely voluntary movement, with rudimentary legal support, SRI so far has wielded limited clout.

A hindrance to the aspirations of SRI is deficiencies in its rationales. This article critiques the main theories advanced to justify SRI from the perspective of their contribution to promoting environmental sustainability: the complicity-based doctrine, leverage-based responsibility, and the universal owner thesis. Apart from gaps or limitations shown in each rationale, the article demonstrates that they conflict with the existing parameters of fiduciary law responsibility of financial institutions. An alternative rationale that emphasizes the temporal perspective to invest over the long term is suggested as a better approach for SRI if it is to be relevant to the pressing challenges of promoting sustainability and governing global financial markets.

Keywords

Financial MarketsGovernanceInstitutional InvestorsSustainabilitySocially Responsible InvestingFiduciary Law
Type
Articles
Information
Transnational Environmental Law , Volume 2 , Issue 2 , October 2013 , pp. 311 - 338
Copyright
Copyright © Cambridge University Press 2013 

Access options

Get access to the full version of this content by using one of the access options below. (Log in options will check for institutional or personal access. Content may require purchase if you do not have access.)

References

1 Coates, J., The Hour between Dog and Wolf: Risk Taking, Gut Feelings and the Biology of Boom and Bust (Penguin, 2012)Google Scholar; Ho, K., Liquidated: An Ethnography of Wall Street (Duke University Press, 2009).Google Scholar

2 Landier, A. & Nair, V., Investing for Change: Profit from Responsible Investment (Oxford University Press, 2008)Google Scholar; Bakshi, R., ‘Transforming Markets in the 21st Century: Socially Responsible Investing as a Tool’ (2007) 39(5) Futures, pp. 523–33.Google Scholar

3 United Nations Conference on Sustainable Development, ‘Financing a Sustainable Future: Is the Financial Community Listening?’, 14 Oct. 2011, available at: http://www.uncsd2012.org/index.php?page=view&nr=447&type=230&menu=38.

4 Hawley, J. & Williams, A., ‘The Universal Owner’s Role in Sustainable Economic Development’ (2002) 9(3) Corporate Environmental Strategy, pp. 284–91, at 286.Google Scholar

5 Richardson, B.J., ‘Are Social Investors Influential?’ (2012) 9(2) European Company Law, pp. 133–41.CrossRefGoogle Scholar

6 J. Hawley, K. Johnson & E. Waitzer, ‘Reclaiming Pension Fund Fiduciary Duty Fundamentals’, Principles of Responsible Investment Academic Network Conference, Stockholm (Sweden), 26–28 Sept. 2011.

7 R. Eccles, I. Ioannou & G. Serafeim, ‘The Impact of a Corporate Culture of Sustainability on Corporate Behavior and Performance’, Working Paper 12-035, Harvard Business School, 2011, available at: http://hbswk.hbs.edu/item/6865.html.

8 Shiller, R., Irrational Exuberance (Princeton University Press, 2000)Google Scholar; Bogle, J., The Battle for the Soul of Capitalism (Yale University Press, 2005)Google Scholar; Coates, n. 1 above.

9 Sun, W., Louche, C. & Pérez, R. (eds), Finance and Sustainability: Towards a New Paradigm? A Post-Crisis Agenda (Emerald Books, 2011).Google Scholar

10 Domini, A. & Kinder, P., Ethical Investing (Addison Wesley, 1984)Google Scholar; Sparkes, R., The Ethical Investor (HarperCollins, 1995)Google Scholar; Jeucken, M., Sustainable Finance and Banking: The Financial Sector and the Future of the Planet (Earthscan, 2001).Google Scholar

11 K. Adam, ‘United in Anger, Occupy Wall Street Protests Go Global’, Washington Post, 16 Oct. 2010, p. A20.

12 Brill, J. & Reder, A., Investing from the Heart (Crown, 1992).Google Scholar

13 Rivoli, P., ‘Making a Difference or Making a Statement? Finance Research and Socially Responsible Investment’ (2003) 13(3) Business Ethics Quarterly, pp. 271–87Google Scholar; Richardson, n. 5 above.

14 UNPRI, ‘The Six Principles’, 2006, available at: http://www.unpri.org/about-pri/the-six-principles.

15 Equator Principles, 2003, available at: http://www.equator-principles.com.

16 Richardson, B.J., ‘Socially Responsible Investing through Voluntary Codes’, in Dupuy, P.-M. & Viñuales, J.E. (eds), Harnessing Foreign Investment for Environmental Protection: Incentives and Safeguards (Cambridge University Press, 2013), pp. 383–414.Google Scholar

17 Kingsbury, B., Krisch, N. & Stewart, R.B., ‘The Emergence of Global Administrative Law’ (2005) 68 Law and Contemporary Problems, pp. 15–61.Google Scholar

18 H. Jemel-Fornetty, C. Louche & D. Bourghelle, ‘Changing the Dominant Convention: The Role of Emerging Initiatives in Mainstreaming ESG’, in Sun, Louche & Pérez, n. 9 above, pp. 85–117, at 87.

19 Social Investment Organization (SIO), Canadian Socially Responsible Investment Review 2010 (SIO, 2010); United States Social Investment Forum (US-SIF), 2010 Report on Socially Responsible Investing Trends in the United States (US-SIF, 2010); European Social Investment Forum (Eurosif), European SRI Study 2012 (Eurosif, 2012).

20 United Nations Environment Programme – Finance Initiative (UNEP-FI), The Materiality of Social, Environmental and Corporate Governance Issues in Equity Pricing (UNEP-FI, 2004).

21 Richardson, B.J. & Cragg, W., ‘Being Virtuous and Prosperous: SRI’s Conflicting Goals’ (2010) 92(1) Journal of Business Ethics, pp. 21–39.Google Scholar

22 Nystuen, G., Follesdal, A. & Mestad, O. (eds), Human Rights, Corporate Complicity and Disinvestment (Cambridge University Press, 2011).Google Scholar

23 J. Ruggie, ‘Business and Human Rights: Mapping International Standards of Responsibility and Accountability for Corporate Acts’, UN General Assembly, UN Doc. A/HRC/4/35, 19 Feb. 2007.

24 Norwegian Ministry of Finance, The Report from the Graver Committee (Norwegian Ministry of Finance, 2003), at s. 2.2.

25 Council on Ethics, ‘Guidelines for the Observation and Exclusion of Companies from the Government Pension Fund Global’s Investment Universe’ (Guidelines I), available at: http://www.regjeringen.no/en/sub/styrer-rad-utvalg/ethics_council/ethical-guidelines.html?id=425277.

26 Ibid., at s. 2(3).

27 Ibid.

28 Nystuen, Follesdal & Mestad, n. 22 above, at p. 9.

29 Ransome, W. & Sampford, C., Ethics and Socially Responsible Investment: A Philosophical Approach (Ashgate, 2010), at pp. 57–62.Google Scholar

30 Aune, B., Kant’s Theory of Morals (Princeton University Press, 1979).Google Scholar

31 Bix, B., ‘Natural Law: The Modern Tradition’, in Coleman, J.L. & Shapiro, S. (eds), The Oxford Handbook of Jurisprudence and Philosophy of Law (Oxford University Press, 2002), pp. 61–103.Google Scholar

32 Triolo, P., Palmer, M. & Waygood, S., A Capital Solution: Faith, Finance and Concern for a Living Planet (Pilkington Press, 2000).Google Scholar

33 Lichtenberg, J., ‘Negative Duties, Positive Duties, and the “New Harms”’ (2010) 120(3) Ethics, pp. 557–78, at 568.Google Scholar

34 Kadish, S.H., ‘Complicity, Cause and Blame: A Study in the Interpretation of Doctrine’ (1985) 73 California Law Review, pp. 323–410.Google Scholar

35 C. Kutz, ‘Responsibility Beyond the Law?’, in Nystuen, Follesdal & Mestad, n. 22 above, pp. 64–78, at 74.

36 Moore, M.S., Causation and Responsibility: An Essay in Law, Morals, and Metaphysics (Oxford University Press, 2010)Google Scholar; Stewart, J., ‘The End of “Modes of Liability” for International Crimes’ (2012) 25(1) Leiden Journal of International Law, pp. 1–74.CrossRefGoogle Scholar

37 M. Wilkinson & B. Cubby, ‘ANZ Exit from Pulp Mill Project Confirmed’, Melbourne Age, 28 May 2008, at p. 3.

38 R.G. Eccles, ‘Enhanced Business Reporting Consortium Releases Framework to Promote Greater Transparency in Corporate Reporting’, The Free Library, 18 Oct. 2005.

39 S. Wood, ‘An Argument for Leverage-based Business Responsibility for Human Rights’, Robert Schuman Centre for Advanced Studies, European University Institute, Working Paper RSCAS 2011/48, 2011, at p. 13.

40 Carter, N. & Hugby, M., ‘Ecological Citizenship and Ethical Investment’ (2005) 14(2) Environmental Politics, pp. 255–72.Google Scholar

41 Ransome & Sampford, n. 29 above, at p. 72.

42 Wood, n. 39 above.

43 Bomann-Larsen, L. & Wiggen, O. (eds), Responsibility in World Business: Managing Harmful Side-Effects of Corporate Activity (UN University Press, 2004).Google Scholar

44 UN Global Compact, ‘The Ten Principles’, available at: http://www.unglobalcompact.org/AboutTheGC/TheTenPrinciples.

45 UN Sub-Commission on the Promotion and Protection of Human Rights, Norms on the Responsibilities of Transnational Corporations and Other Business Enterprises with Regard to Human Rights, UN Doc. E/CN.4/Sub.2/2003/12/Rev.2 (2003), Principle 1.

46 J. Ruggie, ‘Protect, Respect and Remedy: A Framework for Business and Human Rights’, UN Human Rights Commission, UN Doc. A/HRC/8/5, 7 Apr. 2008, at p. 19.

47 ISO, ‘26000: Guidance on Social Responsibility’ 2010, cl. 2.19.

48 Clark, G. & Knight, E., ‘Implications of the UK Companies Act 2006 for Institutional Investors and the Market for Corporate Social Responsibility’ (2009) 11(2) University of Pennsylvania Journal of Business Law, pp. 256–96, at 266.Google Scholar

49 Haigh, M. & Hazelton, J., ‘Financial Markets: A Tool for Social Responsibility?’ (2004) 52(2) Journal of Business Ethics, pp. 59–71.Google Scholar

50 Monks, R. & Minnow, N., Corporate Governance (Basil Blackwell, 1995).Google Scholar

51 Hawley, J. & Williams, A., The Rise of Fiduciary Capitalism (University of Pennsylvania Press, 2000)Google Scholar; Hawley, J. & Williams, A., ‘The Universal Owner’s Role in Sustainable Economic Development’ (2002) 9(3) Corporate Environmental Strategy, pp. 284–91.Google Scholar

52 Ibid. (2002), at p. 286.

53 Davis, S., Lukomnik, J. & Pitt-Watson, D., The New Capitalists: How Citizen Investors are Reshaping the Corporate Agenda (Harvard Business School Press, 2006), at p. 18.Google Scholar

54 Amalric, F., ‘Pension Funds, Corporate Responsibility and Sustainability’ (2006) 59(4) Ecological Economics, pp. 440–50.Google Scholar

55 Hardin, G., ‘The Tragedy of the Commons’ (1968) 162(3859) Science, pp. 1243–8.Google Scholar

56 Olson, M., The Logic of Collective Action: Public Goods and the Theory of Groups (Harvard University Press, 1965).Google Scholar

57 Universities Superannuation Scheme, ‘Objectives and Strategy’, available at: http://www.uss.co.uk/UssInvestments/Responsibleinvestment/RIObjectivesStrategy/Pages/default.aspx.

58 Fonds de Réserve pour les Retraites, ‘Responsible Investment Strategy’, Mar. 2008, available at: http://www.fondsdereserve.fr/documents/FRRsSRI_investment_strategy_2008_2012.pdf.

59 Ibid.

60 Hebb, T., No Small Change: Pension Funds and Corporate Engagement (Cornell University Press, 2008).Google Scholar

61 Norges Bank Investment Management, NBIM Investor Expectations: Climate Change Management (Norges Bank, 2008).Google Scholar

62 UN Millennium Ecosystem Assessment (UN-MEA), Living Beyond our Means: Natural Assets and Human Well-Being, Statement from the Board (UN-MEA, 2005).

63 UNEP-FI & the UNPRI Secretariat, Universal Ownership: Why Environmental Externalities Matter to Institutional Investors (UNEP-FI, 2011).

64 Principles of Responsible Investment (PRI) Association & UNEP-FI, Universal Ownership: Why Externalities Matter to Institutional Investors (PRI Association & UNEP-FI, 2010), at p. 2.

65 The majority of these costs are attributed to greenhouse gas emissions and unsustainable water use.

66 J. Hawley, ‘Towards a Fiduciary Capitalism Perspective on Business’, in Sun, Louche & Pérez, n 9 above, pp. 19–37, at 21.

67 Daly, H., ‘Allocation, Distribution and Scale: Towards an Economics that is Efficient, Just and Sustainable’ (1992) 6 Ecological Economics, pp. 185–93.Google Scholar

68 Mulder, I., Biodiversity, the Next Challenge for Financial Institutions? (International Union for Conservation of Nature, 2007).Google Scholar

69 Mackenzie, C., ‘The Scope for Investor Action on Corporate Social and Environmental Impacts’, in Sullivan, R. & Mackenzie, C. (eds), Responsible Investment (Greenleaf, 2006), pp. 20–38, at 37.Google Scholar

70 Patry, M. & Poitevin, M., ‘Why Institutional Investors are not Better Shareholders’, in Daniels, R.J. & Morck, R. (eds), Corporate Decision-Making in Canada (University of Calgary Press, 1995), pp. 341–77.Google Scholar

71 J. Edelman, ‘When do Fiduciary Duties Arise?’, Legal Research Paper Series, No. 65, Oxford University, 2010, at p. 15.

72 Langbein, J., ‘Questioning the Trust Law Duty of Loyalty: Sole Interest or Best Interest?’ (2005) 114 Yale Law Journal, pp. 929–90.Google Scholar

73 Freshfields Bruckhaus Deringer, A Legal Framework for the Integration of Environmental, Social and Governance Issues into Institutional Investment (UNEP-FI, 2005).

74 Emid, A., ‘The Ethical Choice: It Takes a Steady Hand to Balance Fiduciary Responsibility with Ethical Goals’ (1997) 21(4) Benefits Canada, pp. 89–92Google Scholar; Tennent, D., ‘Ethical Investment in Superannuation Funds: Can it Occur Without Breaching Traditional Trust Principles?’ (2008) 17 Waikato Law Review, pp. 98–114Google Scholar.

75 Cowan v. Scargill [1985] 1 Ch 270; Martin v. City of Edinburgh District Council [1988] SLT 329; Bishop of Oxford v. Church Commissioners for England [1992] 1 WLR 1241.

76 Troyer, T., Slocombe, W. & Boisture, R., ‘Divestment of South Africa Investments: The Legal Implications for Foundations, Other Charitable Institutions, and Pension Funds’ (1985) 74 Georgetown Law Journal, p. 127.Google Scholar

77 Hebb, n. 60 above, at p. 26.

78 Thornton, R., ‘Ethical Investments: A Case of Disjointed Thinking’ (2008) 67(2) Cambridge Law Journal pp. 396–422, at 405.Google Scholar

79 Stratos, Corporate Disclosure and Capital Markets, National Roundtable on the Environment and the Economy, 2012, at p. 12.

80 Freshfields Bruckhaus Deringer, n. 73 above, at p. 13.

81 Camejo, P., The SRI Advantage: Why Socially Responsible Investing Has Outperformed Financially (New Society, 2002)Google Scholar; Cherneva, I. (ed), The Business Case for Sustainable Finance (Routledge, 2012).CrossRefGoogle Scholar

82 Hebb, n. 60 above, at p. 39.

83 UNEP-FI, Show Me The Money: Linking Environmental, Social and Governance Issues to Company Value (UNEP-FI, 2006), at p. 4.

84 European Centre for Corporate Engagement, Use of Extra Financial Information by Research Analysts and Investment Managers (European Centre for Corporate Engagement, 2007).

85 Jemel-Fornetty, Louche and Bourghelle, n. 18 above, at pp. 89–91; Juravle, C. & Lewis, A., ‘Identifying Impediments to SRI in Europe: A Review of the Practitioner and Academic Literature’ (2008) 17(3) Business Ethics: A European Review, pp. 285–310.Google Scholar

86 J. Solomon, Pension Fund Trustees and Climate Change (Association of Certified Chartered Accountants, 2009), at pp. 21–3.

87 Jemel-Fornetty, Louche and Bourghelle, n. 18 above, at p. 90.

88 Lyndenberg, S., ‘Universal Investors and Socially Responsible Investors: A Tale of Emerging Affinities’ (2007) 15(3) Corporate Governance: An International Review, pp. 467–77, at 471.Google Scholar

89 Richardson, B.J., Socially Responsible Investment Law: Regulating the Unseen Polluters (Oxford University Press, 2008), at pp. 120–58.Google Scholar

90 [1985] Ch 270.

91 Ibid., at p. 296.

92 Freshfields Bruckhaus Deringer, n. 73 above, at p. 89.

93 M. Haigh, ‘Camouflage Play: Making Moral Claims in Managed Investment’ (2006) 30(3) Accounting Forum, pp. 267–83.

94 Gary, S., ‘Is it Prudent to be Responsible? The Legal Rules for Charities that Engage in Socially Responsible Investing and Mission Investing’ (2011) 6(1) Northwestern Journal of Law and Social Policy, pp. 106–29.Google Scholar

95 Wen, S., ‘Institutional Investor Activism on Socially Responsible Investment: Effects and Expectations’ (2009) 18(3) Business Ethics: A European Review, pp. 308–33.Google Scholar

96 US Department of Labor, Letter to William M. Tartikoff, Senior Vice President and General Counsel of Calvert Group, 28 May 1998, reprinted in 25 Pens. & Ben. Rep. (BNA) 1328 (8 June 1998).

97 New Zealand Superannuation and Retirement Income Act 2001, s. 61(d).

98 Guardians of New Zealand Superannuation, ‘How we Invest’, 2012, at p. 138, available at: http://www.nzsuperfund.co.nz/files/How%20We%20Invest.pdf.

99 South African Trust Investments Act, RSO 1990, c.S.16, s. 3(a)–(b).

100 N. 15 above.

101 UNEP-FI, ‘UNEP Statement by Financial Institutions on the Environment & Sustainable Development’, May 1997, available at: http://www.unepfi.org/statements/fi.

102 N. 14 above.

103 F. Partnoy, Wait: The Art and Science of Delay (PublicAffairs, 2012).

104 USS, ‘The Marathon Club’, available at: http://www.uss.co.uk/UssInvestments/Responsibleinvestment/marathonclub/Pages/default.aspx.

105 Long-Term Investors Club, available at: http://www.ltic.org.

106 Dallas, L., ‘Short-Termism, the Financial Crisis, and Corporate Governance’ (2012) 37(2) Journal of Corporate Law, pp. 266–362.Google Scholar

107 H. Blodget, ‘You’re an Investor? How Quaint’, Business Insider, 8 Aug. 2009, available at: http://www.businessinsider.com/henry-blodget-youre-an-investor-how-quaint-2009-8.

108 J. Kay, ‘The Kay Review of UK Equity Markets and Long-Term Decision-Making’, UK Department of Business Innovation and Skills, July 2012, available at: http://lawcommission.justice.gov.uk/docs/kay-review-of-equity-markets-final-report.pdf.

109 CFA Centre for Financial Market Integrity and Business Roundtable for Corporate Ethics, Breaking the Short-Term Cycle (CFA Institute, 2006), at p. 1.

110 Bosselmann, K., The Principle of Sustainability: Transforming Law and Governance (Ashgate, 2008).Google Scholar

111 Voigt, C., Sustainable Development as a Principle of International Law (Martinus Nijhoff, 2008).Google Scholar

112 K. Johnston & F. de Graaf, ‘Modernizing Pension Fund Legal Standards in the 21st Century’, Network for Sustainable Financial Markets, Consultation Paper No. 2, Feb. 2009, at pp 4–5, available at: http://www.oecd.org/corporate/ca/corporategovernanceprinciples/42670725.pdf.

113 See Donovan v. Walton (1985) 609 F. Supp. 1221; Board of Trustees of Employee Retirement System of the City of Baltimore v. City of Baltimore (1989) 317 Md. 72; 562 A.2d 720.

114 Restatement of the Law Third, Trusts (American Law Institute, 1992), s. 227 (my emphasis).

115 CERES, available at: http://www.ceres.org.