INTERNATIONAL SRI
by Michelle Chan-Fishel from Friends of the Earth

"Emerging market mania" has swept all corners of the financial world --and the gossamer promises of high returns certainly have not escaped the attention of socially conscious institutional investors. Multinational corporations, and the aggressive-growth funds that back them, frequently invest in Third World countries to reap profits associated with rapid economic growth unfettered by environmental and labor regulations. Rivers are dammed, forest lands are cleared and small farming operations are replaced by belching smokestacks and feedlots.

As governments around the world look at shirking budgets and rising costs of development, and as public financial institutions like the World Bank realize that they can only provide a fraction of development finance, a disconcerting fact is emerging: Only wealthy corporations can raise money needed for financing the water and sewer systems, electrification, and roads that are a major part of the development needs of Third World countries. Private money now accounts for 75% of all development financing, and critical development projects that don't generate profits (such as rural electrification or services to the poorest populations) are falling by the wayside.

Twenty years ago, the field of "international development" was dominated by national aid agencies and multilateral development banks. Despite their checkered pasts, government development agencies have mandates to alleviate poverty and improve standards of living. They also possess the institutional capacity to promote gender and class equity, social integrity, participatory planning, community-based stewardship of resources-- the trappings of genuine development. In contrast, the vast majority of private, corporate-driven development is driven solely by profit maximization, and is not informed by such development concepts. As the relative power of governmental development institutions continues to wither, and as governments in the North and South downsize and embrace self-regulation, the corporation is emerging as today's power player in determining the development paths of entire nations. Environmentalists now are asking, "Will profit-driven development place the Third World on a path of sustainability?"; and question whether individual companies are capable of assuming the new responsibilities associated with being an engine of development.

Most corporations protest that participatory decision-making, social integrity and the like are the obligation of local government or civil society; that they cannot bear responsibility for the trappings of development. But nevertheless, the far-reaching impacts of their activities on the environment, women, democracy, equity, and general economic development leave corporations with a moral obligation to address these stakeholder concerns.

As socially conscious investors ponder internationalizing their portfolios, they will realize that a chasm has ruptured between what the SRI community is able to accomplish through social and environmental screening and what cannot be addressed yet through screens. Many social researchers confide that information-gathering on an international level is at an infant stage -- about ten years behind access to information levels in the U.S. Thus, most research firms only are able to identify a multinational corporation's most egregious practices, or certain countries where a company operates.

Though a recent Interfaith Center on Corporate Responsibility (ICCR) report reveals that a small number of companies are increasingly measuring sustainability indicators, it will be years before the SRI community develops a thorough methodology for assessing corporations on the basis of sustainability, or in their new role as sculptor of development in poor countries.

With such limitations, the socially responsible, internationally-minded investor falls into a quandary. But rather than shy away from international investing altogether, the SRI community can take positive strides towards making corporations agents of sustainable development -- trappings and all. Some ideas:

1. Build stronger ties between the SRI community and international development/ environmental NGO's (non-government organizations). Together we can explore the issue of foreign investment, corporate accountability and development; and continue to jointly research and monitor corporations.

2. Make non-traditional front-line investment. Groups like Global Environmental Fund or Environmental Enterprises Assistance Fund mobilize venture capital / equity for environmentally beneficial projects and companies in the developing world, with special emphasis put on sustainability and biodiversity. All international investing should support responsible local companies with some national ownership.

3. Continue engaging in shareholder activism. For example, CALPERS (California Public Employees Retirement System) has recently partnered with the Asian Development Bank (ADB) to form an Asian Equity fund. CALPERS is relying on the ADB to identify projects and companies with a high positive development impact, and to monitor the non-financial implications of their portfolio. CALPERS should use its considerable weight to ensure that the ADB is adhering to all its policies on environment, public participation, etc.

4. Continue pressuring companies to release environmental and social data; and in the long run, encourage the SEC (Securities and Exchange Commission) to require such reporting. Even the best self-disclosure, though, shouldn't replace independent NGO and SRI monitoring nor our continuing attempts to build links to affected communities overseas.

Contact: Michelle Chan-Fishel at Friends of the Earth
phone (202) 783-7400 or email - foe@for.org

Copyright © 1996. The Light Party.