The social responsibility concept has a dramatic dynamics in the last decades taking in account typology of economic agents involved: transnational corporations, small and medium enterprises and portfolio investors. In this paper, we analyze the development of environment, social and governance (ESG) practices on the European capital market and the active implication of investment consultants and stock exchanges in this field. Taking in account the conclusions of this article, some legal measures could be set up in Romania in order to promote the concept of social responsible investment (SRI) on the local capital market.investments, social responsibility, capital market, social governance.

Jean ANDREI

Mirela MATEI

English

Research Papers in Economics

Review of International Comparative Management                              Special Number 1/2011  429 
 
CONSIDERATIONS REGARDING THE SOCIAL 
RESPONSIBLE INVESTMENTS ON CAPITAL MARKET 
 
 
Mirela MATEI 
Jean ANDREI 
Petroleum and Gas University of Ploieşti, Romania 
 
 
KEYWORDS:  investments,  social  responsibility,  capital  market,  social 
governance 
 
 
The corporate social responsibility –dimensions and functions 
 
The transnational corporations have multiple effects on the host economies 
and on the entire world economy. Along time, the transnational corporations have 
been implicated in different social responsibility (SR) programs, and many benefits 
are  registered  for  local  economies  and  transnational  corporations.  The  social 
responsibility  of  transnational  corporations  gets  very  specific  meanings  and 
characteristics taking into account the fact that they are part of a global economic 
and  social  environment,  at  confluence  of  levels  of  rights  and  obligations 
determined by the economic and social medium of the home and the host countries. 
The  first  and  most  important  promoters  of  the  SR  programs  are 
transnational  companies,  and  the  number  of  signatories  of  the  United  Nations 
Global  Compact  demonstrates  an  increased  interest  for  such  activities.  Thus,  [ 
1,  5,  8]  in  Europe,  more  than  half  of  the  signatories  are  small  and  medium 
enterprises (SMEs), this situation being found in countries such France and Spain. 
This is understandable given the fact that 90% of European companies are SMEs, 
and two thirds of the private sector workforce is employed by SMEs. 
Beside the social activism of companies, we remark the preoccupations of 
public authorities and international  institutions for the running  of SR programs. 
Growing interest of authorities for social responsibility practices is due because the 
public policy is not a substitute for SR, but it can contribute to achievement of the 
ABSTRACT 
The social responsibility concept has a dramatic dynamics in the last decades 
taking in account typology of economic agents involved: transnational corporations, 
small and medium enterprises and portfolio investors. In this paper, we analyze the 
development of environment, social and governance (ESG) practices on the European 
capital  market  and  the  active  implication  of  investment  consultants  and  stock 
exchanges in this field. Taking in account the conclusions of this article, some legal 
measures  could  be  set  up  in  Romania  in  order  to  promote  the  concept  of  social 
responsible investment (SRI) on the local capital market.          Special Number 1/2011                         Review of International Comparative Management  430 
public  authorities`  objectives  in  certain  areas  because  companies  can  promote 
various programs: 
  to recruit  more people from  disadvantaged  groups, thus achieving a 
better integration on labor market and increase social inclusion;  
  to  prepare  the  workforce,  that  remains  so  competitive  in  a  global 
economy,  and  in  this  way  the  employment  of  the  population  is 
increasing;  
  to promote certain food and non-toxic chemicals or public awareness 
on  the  prevention  of  certain  diseases,  and  this  contributes  to 
improvement of public health;  
  environmental  protection  and  investment  in  eco-innovation,  thus 
contributing to a more rigorous use of natural resources and protection. 
  Some  specialists  have  drawn  the  attention  that  companies  have  an 
important dilemma regarding the promotion  of SR programs. The SR programs 
bring a competitive advantage to the promoters, but if we take in account the cost 
of these programs, the positive effect is hard to be measure and the SR friendly 
companies  could  being,  in  the  end,  less  competitive  than  their  less  responsible 
competitors [9]. In addition, the non-SR friendly companies could face with SR 
risks that may have negative influence on the corporate value and the cost of the 
capital [2]. 
 
The social responsible investment and capital market’s actors 
 
The transnational corporations and the small and medium enterprises are 
not  the  only  economic  agents  with  preoccupations  regarding  their  social 
responsibility. On the capital market, many investors construct their portfolios and 
make  decisions  taking  in  account  environmental,  social  and  governance  (ESG) 
issues like climate change, human rights, labor standards, product safety, poverty 
reduction  or  human  capital.  The  result  is  the  launch  of  new  concepts:  social 
responsible investment and sustainable investment. This trend is sustained [11, 14] 
not only by institutional investors like pensions funds or financial consultants, but 
also by  
  publicly  listed  companies  that  run  different  social  responsible 
programs, 
   policy makers and regulators that want to offer some legal directions 
in this fields; 
  accounting  and  auditing  standards  boards  that  offer  standards  to 
evaluate social responsible investment (SRI);  
  stock  exchanges  that  impose  listing  conditions  and  disclosure 
guidance,  establish  specialized  trading  platforms  and  launch  EGS 
related traded products, sustainability indices and  
  multilateral bodies like World Federation of Exchanges (WFE) that 
support  the  efforts  made  in  this  field  by  exchanges,  investors  and 
listed companies.  Review of International Comparative Management                              Special Number 1/2011  431 
On  the  capital  market,  many  investors  take  into  consideration  in  the 
portfolio  constructions  and  decision-making  process  the  influence  of  extra-
financial factors like environmental, social and governance issues. The investors 
that  integrate  ESG  issues  into  portfolio  activity  and  investment  activity  are 
considered responsible investors. Therefore, the responsible investors are aware of 
the extra-financial risks like cohesion risk, reputation risk and embezzlement risk 
(internal fraud, corruption, forgery and unfair competition) that cause the decrease 
of the company’s value and, in this way, the profits are affected.  
The importance of the ESG issues is demonstrated by the official figures 
regarding  the  extension  of  the  sustainable  investment  market.  According  to 
professional bodies  [14], in  USA, around 11%  of the assets under professional 
management are involved in socially responsible investments [6, 10, 13] and in 
Europe, the share is 17% (Eurosif). In addition, many institutional investors like 
pensions  funds  (over  170  pension’s  funds  that  manage  over  $18  trillion)  have 
signed the United Nations Principle for Responsible Investment.  
  Many  exchanges  from  developed  and  even  developing  countries  have 
taken initiatives in order to promote ESG principles among the listing companies; 
and in this way, the individual and institutional investors have the possibility to 
make social responsible investment in a facile  manner. These initiatives can be 
divided in three sections.[2, 4, 8, 9] 
1.  The exchanges promote ESG standards for the listing companies. For 
example, in Malaysia, the listing companies must include in their Annual Report a 
description of their corporate social responsible investment activities and practices. 
In China, the most important exchanges – Shenzen Stock Exchange and Shanghai 
Stock Exchange issued a SR guidance. These initiatives are supported by public 
authorities  –  Ministry  of  Environmental  Protections  and  China  Securities 
Regulatory Commissions have launched a „Green Securities” policy and the listed 
companies  must  disclosure  more  information  about  their  environmental  record. 
Other  exchanges  have  been  revised  their  Corporate  Governance  Principles  or 
Codes in order to raise ESG awareness among the listed companies.  
2.  In  order  to  facilitate  the  investors’  selection  of  social  responsible 
investment, the exchanges have launched many sustainability indices. The pioneers 
and  the  leaders  in  the  field  of  indices`  constructions  are  the  main  securities 
exchanges: London Stock Exchange Group, NASDAQ OMX and NYSE Euronext. 
There are also new entrants in this field [12, 13]: the exchanges from countries like 
China, India, Brazil, Korea, and South Africa. These sustainability indices are set 
up on the shares issued by listed companies that meet certain ESG criteria. Taking 
in account the way of construction, these indices are broad based indices of stocks 
from all industry sector (like FTSE KLD Global Sustainability Index, Korean SRI 
Index  or  Wiener  Borse  VÖNIX  Sustainability  Index),  sector  indices  (like 
NASDAQ  OMX  Clean  Edge  Global  Wind  Energy  Index  or  Deutsche  Börse’s 
DAXglobal Alternative Energy Index) and broad based indices focused on specific 
ESG issues (like NYSE Euronext Low Carbon 100 Europe Index).          Special Number 1/2011                         Review of International Comparative Management  432 
3.  Some  exchanges  have  been  set  up  specialized  markets  for  specific 
social  responsible  investment  or  there  are  specialized  exchanges  where  ESG 
related products are traded. On BlueNext, carbon another related products like 
Certified  Emission  Reduction  (CER)  credits  under  the  Kyoto  Protocol’s  Clean 
Development  Mechanism  and  European  Union  Allowances  (EUAs)  under  the 
European  Emissions  Trading  Scheme  (ETS)  are  traded  on  the  spot  and  futures 
markets.  Other  exchanges  like  European  Climate  Exchange  (ECX)  and 
Intercontinental  Exchange  (ICE)  have  launched  carbon  derivatives  on  EU 
allowances (EUAs) and certificated emissions reductions (CERs). We remark also 
the  cooperation  between  Eurex,  an  important  derivatives  exchange  and  a 
specialized exchange – European Energy Exchange (EEX) in order to advance the 
ESG goals. The result is the trading of derivatives on the emission rights: CER 
futures, EUA futures and options on EUA futures.  
In this world of sustainable investors, there is an important actor that can 
promote  the  integration  of  ESG  issues  in  investment  strategies  of  institutional 
investors: the consulting firm. In fact, the consultants are seen as „gatekeepers” 
taking  in  account  their  role  in  advising  individual  investors  and  investment 
managers of institutional investors. [10]. At international and regional levels, many 
surveys were conducted in order to observe the implications of consultants in ESG 
integration in investment strategies, and the results are similar, even the locations 
are  different.  According  to  UNEPI,  the  consulting  firms  “observed  a  growing 
interest in ESG investment advice among their client base” [13]. Event the interest 
for  ESG  integration  is  growing;  many  steps  must  be  done  in  order  of  further 
educations of trustees and managers of institutional investors. Some trustees are not 
conscientious  of  the  importance  of  selecting  managers  with  ESG  expertise  and 
some  managers  are  not  interested  in  promoting  ESG  integration  in  investment 
strategies.  
The surveys conducted in USA and Europe revealed that investors are the 
most important promoters of ESG integration because they make request in this 
respect to consultant  firms. In  other cases, the  investors are incorporating ESG 
criteria  in the  investment strategies because  of the  existence  of regulations and 
law’s provisions [10]. Therefore, until now, the most consultants have a passive 
role in promoting ESG criteria. In order to improve the institutionalizing of ESG 
issues in the consultant industry, some world leading consultants have set up teams 
with full time consultants focused on social responsible investment.  
   
  Conclusions 
 
  The SRI universe is expanding due to some factors like: the increase of 
inflows into existing SRI products, the adoption of SRI strategies by managers and 
investors  not  previously  involved  in  this  field,  the  development  of  new  SRI 
products, the effort of consultants in order to provide ESG expertise to their clients, 
the  measures  took  by  stock  exchanges  that  promote  ESG  principles  and  offer 
appropriated products and indices; the promotion of ESG related disclosure laws. Review of International Comparative Management                              Special Number 1/2011  433 
So, there are many implicated parts on the SRI market, but the policymakers play 
the crucial role because they must ensure the regulatory framework for promotion 
and  disclosure  of ESG practices. But, the public authorities  must  not to be the 
single  promoters  of  ESG  principles.  All  financial  actors  (individual  and 
institutional  investors,  stock  exchanges  and  consultants  firms)  have  to  try  to 
implement the ESG strategies in their activities. Even this implementation is not an 
easy or costless process, the financial actors are aware of the benefits of sustainable 
investment. [3]. So, they are engages in changes process regarding the management 
and organization, the investment and financial strategies, the innovation strategies, 
the advisory process, the personnel selection etc.  
The importance of social investment for world economy is demonstrated 
by the set up of the Principles of Responsible Investment Initiative as a voluntary 
framework  supported  by  UNEP  Finance  Initiative  and  UN  Global  Compact.  In 
present,  there  are  over  830  of  signatories  of  these  principles,  divided  in  three 
categories: asset owners, investment managers and professional service partners. 
The  survey  conducted  by  PRI  Imitative  in  2010  reveals  the  implication  of 
investment institutions in ESG integration: over 95% of asset owners and 87% of 
investment  managers  promote  an  investment  policy  that  incorporates  the  ESG 
issues; and around 50% of respondents have a dedicated ESG specialist in their 
organizations. [13] 
The stock exchanges are important players on SRI markets because they 
have the power to established different ESG criteria for listed companies through 
corporate  governance  codes  and  listing  regimes  and  to  promote  sustainable 
investment through their ESG related traded products or markets.  
In conclusion, the social responsibility programs and initiatives are, in a 
large extend,  voluntary, but public authorities must take certain steps to making 
the  most  positive  effects  on  society  For  example,  in  Romania,  with  regard  to 
European  experience,  some  measures  could  be  adopted  in  order  to  support  the 
economic agents in promoting social responsibility. The Government may amend 
regulations  regarding  the  private  pension  funds  in  order  to  obligate  them  to 
disclosure  information  regarding  the  promotion  ESG  issues  in  the  investment 
process (the case of Great Britain since 1996). In addition, the Company Law could 
be amended so that companies to be required to report how they take in account the 
interest  of stakeholders such as  employees, community  or the  environment (the 
case of Great Britain since 2002). The Capital Market Law may change and the 
companies  should  be  obligated  to  publish  annual  reports  on  their  social 
involvement (the case of France since 2001).  
 
            Special Number 1/2011                         Review of International Comparative Management  434 
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Considerations Regarding the Social Responsible Investments on Capital Market

http://rmci.ase.ro/no12vol1s/Vol-12_No-1S_Article-66.pdf

Considerations Regarding the Social Responsible Investments on Capital Market

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