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Putting your heart into investments

Jane Parry

Keeping an eye on factors like social justice and environment while investing is slowly taking root in Asia

In the past few years the issue of sustainable and responsible investment (SRI) in Asia has taken a small but firm foothold in the region. Leading the pack are Japan and Australia, where SRI funds have close to US$10 billion in assets under management, according to a report published recently by the Association for Sustainable and Responsible Investment in Asia (Asria). Closer to home, Hong Kong investors now have a modest range of SRI funds to choose from, in the global and Asian regional sectors.

Although there are many shades of SRI, it can be broadly defined as investment which takes into account concerns such as social justice, economic development, peace and the environment, as well as conventional financial considerations. There are three main types of SRI - portfolio screening to exclude or include companies according to certain socially responsible criteria; shareholder engagement, whereby investors actively engage with companies to improve their behaviour; and community investing, including micro credit and revolving loan schemes.

The Asria report, 'SRI in Asian Emerging Markets', looks at what has been achieved over the last two to three years in the quest to bring SRI to Asia. What became apparent is that activities on many levels, from investment funds and corporate governance to micro-finance and social activism, are all contributing to the growing interest in SRI issues, according to Asria's newly appointed executive director Melissa Brown.

'After Australia and Japan the next market that currently shows the most potential for near-term development is Korea, both in terms of investable companies and the development of domestic funds,' she says. 'For the long term, it's no surprise that India and China are the biggest potential markets.'

One of the drivers for SRI in Asia is the greater attention that governments, institutional investors and corporations are paying to corporate governance.

As SRI is one means of assessing risk, it goes hand-in-hand with corporate governance, says Ms Brown. 'Shoring up the performance of listed companies and looking at SRI both require the same thing - better disclosure from companies.'

For Hong Kong investors, the most interesting developments are the growing number of locally authorised SRI funds and the greater attention being paid by SRI researchers to Hong Kong-listed Chinese companies.

Companies like China Mobile, China Unicom, CNOOC and Legend Holdings are all now in the crosshairs of the major SRI research providers such as the Ethical Investment Research Service. This means investors who want to introduce an element of SRI into their own portfolio can start to get some independent analysis.

Kingsway Fund Management is the one local fund house that invests using an SRI overlay and has five funds on offer, investing in Asia, China and Hong Kong. However, the performance of their funds relative to peers is, frankly, parlous.

Consistently bottom of the league, they do little to promote the concept of SRI as a credible alternative to conventional investing.

In the global equity universe there are a number of funds from international houses to choose from. Most notable is the UBS (Lux) Equity Fund-Eco Performance Fund, which returned 9.1 per cent in the year to the end of August, and ranked a respectable 37th out of a total of 103 funds. Over three years it is at the half-way mark in the league table, down 38.47 per cent against a sector average decline of 31.49 per cent.

Two newer funds, the Henderson HF Global Sustainable Investments Fund and the ABN AMRO Socially Responsible Equity Fund were launched in November 2001 and have a limited track record.

If the medium-term performance of these three funds can nudge into the top half, Hong Kong investors may pay more attention to SRI.

In the meantime, fund houses and SRI advocates will still have an uphill struggle to stimulate local interest.

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