Mutual Fund Reports on Environmental and Social Returns

All investors expect companies to report on their financial performance in a transparent way; so too do they expect transparent financial reporting from their mutual funds. Social investors are increasingly calling on companies they invest in to report on their social and environmental performance as well. Now, Norway-based Storebrand Investments is offering a mutual fund that reports on the social and environmental performance of the companies in its portfolio.

Storebrand Principle Global Fund’s Triple Return Report discloses the “Social Returns” and “Environmental Returns” in addition to the financial returns of their portfolio’s holdings. The report compares the average environmental, social, and financial performance of companies on the fund’s benchmark, the Morgan Stanley Capital International-World Index (MSCI-WI), to the average performance of the portfolio’s companies in aggregate. Storebrand’s Triple Return Report sets an important precedent in transparency on the non-financial side.

“I am not aware of any other (SRI) Fund that goes to the lengths Storebrand does to measure, quantify and report the superiority of sector leaders over their peer group in terms of environmental performance or social responsibility,” said Storebrand Investments UK Director Stephen Williams. “We are transparent in reporting the results.”

The Environmental Returns report details the portfolio companies’ performance in several categories: global warming, ozone depletion, toxic releases, and material-, energy-, and water intensity. The report also includes two umbrella categories: overall product characteristics and impacts, evaluated by sector-specific indicators such as recyclability, and quality of environmental management, which represents a comprehensive assessment of the companies’ environmental policies and practices.

On average, the Storebrand Principle Global Fund outperformed its benchmark’s average on Environmental Returns in 2001.
Storebrand bases its Social Returns criteria on generally accepted international standards, such as adherence to the United Nations Universal Declaration of Human Rights, International Labour Organisation conventions, and Amnesty International guidelines. The report addresses four dimensions: what companies say they will do (policies and strategies), what they actually do (practices), how their social commitments extends beyond their own companies (business partners and suppliers), and how they have integrated these measures into their organizations (scope, and occupational health and safety).

Most companies in the fund’s portfolio tend to score slightly above average on the Social Returns report, while a few leading companies in several sectors tend to score very high, buoying the overall results even higher. The fund’s social performance in 2001 exceeded the average performance of its benchmark by about a third on all five social criteria.
Mr. Williams cautions that reporting on the social and environmental performance of mutual funds requires dedication.

“Generating the report is the straightforward part of the process,” said Mr. Williams. “The more difficult part is contributing the intellectual horsepower to develop the methodology, recruit and train the professionals to undertake the research, building the database that underlies the research and the system which processes all the inputs. This is a huge commitment, especially for those SRI providers who are not prepared to make the type of commitment necessary to develop a world class SRI capability.”