Saturday, April 15, 2017

Calls for Socially Responsible Investing

The concept of socially responsible investing (SRI) suggests that investors would invest in companies that are acting in socially and environmentally responsible ways, and that such investors would exit from investments in businesses that do not comport with environmental, social and governance (ESG) criteria. Such investors maintain a balance between financial sustainability and social impact without necessarily preferring either over the other, i.e. the classic “win-win” situation.

While the concept of corporate social responsibility (CSR) in broader terms has now become well-entrenched in India, the focus on SRI has been far less. However, new calls for SRI in India are being heard through the route of public interest litigation (PIL) filed before the courts. The Hindu carries a report indicating that certain Tata trustees have initiated a PIL seeking divestment on shares held by the government-owned insurance companies in ITC Limited, due to the latter’s involvement in the tobacco industry. The plea specifically thrusts light on the inherent contradiction between the harmful effects of tobacco and their impact on lifespan (a matter of concern for the insurance industry). This is in addition to the need for the insurance industry to invest with the primary objective of public welfare. A report in the Business Standard highlights other moves towards SRI.

While the route of undertaking litigation to seek insurance companies’ divestiture from the tobacco industry appears somewhat unconventional, it brings into focus the issue of SRI in the Indian context. Ultimately, the concept of stewardship must imbibe within it not only matters relating to voting on shares, but also the types of investments that institutional investors may undertake. In addition to the stewardship responsibilities that have been imposed (as discussed here), insurance companies (and other institutional investors as well) are likely to face pressure to invest in a socially responsible manner.

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