For us, one of the points of enlightenment was a proposal for a definition that came from an academic in the Netherlands. It proposed categorising RI activity under three headings: ‘values‑based’, ‘alpha‑enhancing’ and ‘beta‑securing’. I have slightly modified that, but broadly those were the three categories. The values‑based activity I think is where we have all come from historically in the Anglo‑Saxon community such as ethical, normative or the Scandinavian international norms exclusion approach. I would also say that ‘best-in-class’ is a values‑based proposition. There is no evidence that it adds to performance and there is no evidence that it decreases performance. It is a value that you would like your money to be allocated to as some kind of good corporate citizen.
Then you have the newer categories around better risk‑adjusted returns and here I think there is growing evidence that SRI does add to performance in a risk‑adjusted sense and certainly where you can look at particular issues in particular markets, such as corporate governance.
Then you have beta‑securing activity, the idea that you are exposed to a large market index and your ability to match your liabilities is related to that.
Now, I think the interesting thing about this classification is that it allows you to have a discussion with your clients about which balance you might want. For example, with a large institutional asset owner you might want quite a lot of beta‑type RI activity, whereas for the retail community you might want a very
high values‑based proposition. I think part of our struggle is to have a more sophisticated approach internalised within fund managers.
That makes a lot of sense to me, and I think it also points up the need for unions to think carefully about how they respond to the responsible investment world. Since unions are typically in the game of increasing labour costs (let's be honest!) it's not always an easy sell to get investors - even those that claim to be responsible investors - to take labour issues seriously if we only argue them in terms of long-term shareholder value, or enhanced analytics. Sometimes I think we are better off with a forceful values-driven argument, and most likely to get traction with investors with a values-driven approach to SRI.