Study: No Proof UK SRI Equity Funds Boost Performance

January 4, 2005 ( - UK money managers can certainly go the socially responsible equity fund investing (SRI) route if they want to please a client or to do "the right thing", but they shouldn't look for a performance boost in the process, according to a new research paper.

A recent paper prepared by Mercer Investment Consulting’s SRI research team in London examined the performance in SRI funds by a small selection of the pooled SRI funds offered to the UK institutional market by the larger SRI fund providers.

Researchers said they couldn’t find support for the notion that SRI equity investing is the route to healthier investment performance. “We believe that socially responsible investing in the UK remains something that trustees will adopt if they see it is the ‘right thing to do’ or because of a desire to bring pension investments more in line with the aims and ethos of the sponsoring company,” MercerIC researchers wrote. “There is still some way to go before SRI is regarded as a means to adding sustainable additional value to a pension fund’s investments.”

Given current market conditions, plus the fact that most pooled funds have some negative screening criteria, the skill of the fund manager probably carries even more weight for SRI funds than for mainstream investments, MercerIC said.

Many SRI managers argue that the companies in which they invest have sustainable business practices, and are most likely to perform well over the long term. Increasingly, the SRI community is looking to active engagement (where investors try use their influence as shareholders to change companies, their practices and behavior) as a way to improve standards, both with regard to social responsibility and in terms of shareholder value, MercerIC said.

Many mainstream fund managers now try to go halfway by incorporating SRI-related considerations into their standard investment process – either by subscribing to a SRI research provider or by appointing an SRI specialist.

“In this way, ” MercerIC asserted, “these managers hope to take advantage of the benefits of investing in sustainable companies, without having to be party to the restrictions that limit the scope of investment for managers; or having to provide the financial backing required to set up a dedicated ethical team. Mercer believes that the value added of this type of work, in terms of bottom line performance, will be very hard to quantify until some form of industry standard/engagement benchmark is in place.”

A summary of the research is  here .