Socially responsible investing: implementation of corporate social responsibility in the European financial markets

Abstract

The effects of globalization on financial markets and investing have been manifold. The oil disasters and nuclear disasters and climate change reports have become catalysts for the development of renewable energy investments. Opposition to and boycotting of businesses operating in human-rights violating regimes have fuelled ethical screening moves. Greater awareness of third world poverty and the need for sustainable solutions has been behind the emergence of the community investing and microfinance sector. The recent financial crisis which spread on a global scale has renewed the spotlight on business ethics. Globalization brought increasing concern to businesses through a category of issues collectively referred to as ESG or Environmental, Social and Governance issues. It has revealed the large potential for effects of these issues on the performance of businesses and has served to affirm their materiality. Investing processes are an important part of businesses and as such have been affected by ESG issues as well. Socially Responsible Investing, also known as SRI, refers to the practice of making investment decisions based not only on financial, but also on non-financial criteria such as ESG factors. The existence and rise of SRI has proven to be not just simply a new niche in the market, but has raised awareness of a previously ignored issues brought into the forefront by the forces of globalization. While SRI has not yet become the investment norm in Europe (or any other part of the world for that matter), its importance has steadily been rising. The European Commission has expressed the view that the concept of Socially Responsible Investing is closely related to the concepts of Corporate Social Responsibility (CSR) and Sustainable Development2. While CSR has gained importance in all business sectors in the last few years, SRI has particularly gained importance in the financial sector. Because Corporate Social Responsibility (CSR) has led companies to integrate social and environmental concerns in 2 Steurer, Reinhard., Margula, Sharon., Martinuzzi, André., Socially Responsible Investment in EU Member States: Overview of Government Initiatives and SRI Experts’ Expectations Toward Governments. Final Report to the EU High-Level Group on CSR, Vienna University of Economics and Business Administration, April 2008. 6 their business operations and to step up interaction with their stakeholders on a voluntary basis,3 Socially Responsible Investing can be regarded as the application of CSR principles in investment decisions. Through the use and compilation of existing secondary research, in this work I aim to: (1) Provide a broad overview of the European market for Socially Responsible Investing; (2) Demonstrate that Socially Responsible Investing in Europe is steady on a trajectory of developing from a market niche to a mainstream investing practice; (3) Show the links through which Socially Responsible Investing is connected to Corporate Social Responsibility specifically in the context of European financial markets.