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Fourth Generation on the Socially
Responsible Investment Market
'“Socially responsible”
or "ethical” investment are terms that cover many
aspects. Nowadays the investor can choose from funds with
the adjectives "green", "social", "ethical"
or a combination of these terms. But what is really behind
the descriptions of these funds? How ‘ethical’ are
ethical funds and what criteria of sustainable entrepreneurship
are taken into consideration when it comes to selecting companies?
To indicate the ethical depth and the quality of its criteria,
ETHIBEL offers a classification in four generations of socially
responsible investment funds. This approach has been in the
meantime recognised at the international level. Only socially
responsible investment funds of the fourth generation are
taken into consideration for the ETHIBEL
quality label.
Socially responsible funds of the first generation
are built only based on negative criteria. This means that
the fund manager when drawing up the portfolio will exclude
companies that offer specific activities, products or services.
The investor gets a guarantee that his/her money is not, for
instance, being spent in the arms trade or nuclear energy
production but that's as far as it goes. These types of funds
offer the investor a chance to protest but this formula is
less suited to providing a positive stimulus to the corporate
world. First generation funds are mainly popular in the Anglo-Saxon
world.
The second generation of sustainable funds applies positive
criteria focused on a specific sector or theme. Researchers for
this type of funds actively
look for companies performing well in a specific
field, for instance, by implementing a special social policy
or by making considerable efforts to produce ecologically
responsible products. For these funds, companies are screened
for only one or some aspects of sustainable entrepreneurship.
This mainly concerns companies which carry out a reasonable
sustainability policy in other areas - a good social or environmental
policy are usually part of an overall company plan. Examining
second generation funds is often the first step in looking
into the third generation investment funds.
Third generation investment funds can rightly be called
"sustainable" in the sense that investigations into
these funds comprise all areas of sustainable entrepreneurship.
Based on this comprehensive approach, companies that are really
suited to sustainability are selected. Investigations focus
on internal staff policy and the relationship with the social
environment as well as efforts made in the environment and
the ethical aspects of the company's economic policy.
In addition to the third generation, a fourth generation
has arisen. Just like the third generation funds, these funds
are invested in sustainable enterprises in the widest sense
of the word. The added value, in this case, is in the quality
and the method of evaluation. Vital to fourth generation evaluation
is the communication with 'stakeholders'
of a company. The stakeholders are all the "social shareholders"
who are directly or indirectly involved in the company - shareholders,
company managers, employees, trade unions, customers, suppliers,
people living near the company, members of environmental,
peace or third world organisations, etc.
Communication with stakeholders for fourth generation evaluation
takes place at three levels:
- ETHIBEL closely follows discussions about sustainable entrepreneurship,
human rights, new technologies, etc. for completing evaluation
fields and criteria. For fine-tuning the evaluation model,
ETHIBEL takes account of the contribution of supporters and
detractors of certain technologies or trade practices. ETHIBEL
has regular contact with scientific institutions, international
organisations and NGOs that are active in the third world,
environmental or peace movements.
- During an investigation, ETHIBEL not only concentrates on
information published by the company itself but also maintains
an active dialogue with company directors, employees, trade
unions, people living near the company and all other parties
directly or indirectly involved in the company.
- The final decision on those companies’ eligibility
to be part of a fourth generation investment fund is taken
by a committee of external
experts. In this way, the objectivity, independence and
social basis of the evaluation are guaranteed.
Lastly, a transparent screening
approach must be a guarantee for quality. This means that
the sources consulted are known and the various steps of the
investigation are verifiable by external monitoring parties.
This interactive approach is an important characteristic of
company evaluation employed
by ETHIBEL, which serves as a basis for all socially responsible
funds carrying the ETHIBEL label.
This type of fund is on the rise. This can be seen from the
overview of existing socially responsible investment funds
on the Belgian market.
Various funds of the first and second generation have recently
been converted into third and fourth generation funds. In
Europe, managers of the new socially responsible or "ethical"
funds mainly opt for this latter approach.
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