Socially Responsible Investing - Case Study Example

Case Study: Socially Responsible Investing The uncertain nature of the world has prompted investors to think beyond the statistics represented by the stock prices and the balance sheet. An emerging criterion in evaluating a company fit for investing in is quickly gaining ground. This concept is known as sustainable responsible investing, and it involves evaluating the company on the basis of social responsibilities. As a result, investors seek information on how a company rates in terms of GRI and ESG factors.

The rating companies thus consider several factors when rating the companies in terms of ESG and GRI in order to ensure that they provide accurate and viable information to the investors. One of the factors considered by these rating companies is ESG aspects and corporate strategy. This requires that the corporate strategy of a company includes the development and publishing of ESG and GRI strategy. Publishing information in the stock market ensures transparency about exposures such as risk exposure (DVFA, 2008).

In addition, the company should make the information available online so that potential investors have access and opportunity to view. Furthermore, the company should ensure that there is communication of current, as well as future ESG and GRI topics relating to its business activities such as ESG reports of information availed via the internet. When designing and implementing a corporate strategy, it should mention the importance of ESG aspects and why they are taken into account. The second factor to be taken into consideration by the rating companies is the ESG management.

This involves a company laying out its ESG and GRI management system containing the key processes and elements to the capital market (DVFA, 2008). This is where the online publication of the information about the company involves description of principal functions as well as charts. At this point, also, the company must highlight relevant and individual stakeholder-relationships via internet or on ESG report as part of communication with the stakeholders. Finally, this factor requires a company to release to the capital market a description of its entire ESG program.

This may also involve reports on ESG projects that could enhance corporate strategy. Lastly, there is ESG reporting as one of the factors that rating companies look out for, which ensures that a company organizes its ESG in a systematic manner, and also gear this report towards achieving high data reliability involves. In addition, the ESG and GRI reporting must be continual, transparent, complete and up-to-date (DVFA, 2008). It also should contain the most crucial information about ESG Key Performance Indicators.

Some of the mentioned factors are crucial and companies should grant close attention to them. For example, ESG management is very significant in the success of the business, and thus companies which require SRI rating need to take this into serious consideration. This is because establishing a management system ensures effective monitoring of ESG activities, as well as proper coordination with the central governance or the company governance. This assists in smooth flow of all ESG and GRI activities including information provided to the investors.

Another factor that companies should monitor closely is ESG reporting, which deals with planning and monitoring activities (DVFA, 2008). Reporting is crucial because it deals with important parameters in rating such as transparency, relevance and continuity, which are among the things that investors look out for when evaluating a company. In addition, reporting also involves determination and documentation of financial details, which plays an imperative role in company rating. If I were in the world of rating with respect to SRI, I would consider both general Key Performance Indicators, as well as industry specific performance indicators.

Measuring both the important general and specific industry KPI allows for a clearer picture of the company, and gives authentic and representative reporting. Another factor that I would consider when applying KPI is whether they are master or applied KPI. Master KPI deals with the general purpose of all the issues to be reported. They assist in describing the issue at hand and clarifying the ratio relating to KPI. On the other hand, applied KPI provides a description of the item line to be reported.

One of the KPI I would consider measuring for the all industry is customer satisfaction. Customers are the core of every organization or business operation, and if there is lack of satisfaction then the future of the organization is uncertain as they may lose all their customers. Another general KPI that I would measure is anti-competitive behavior, or monopoly nature of a company. The modern environment has no place for a monopolistic company as many competitive businesses are emerging rapidly.

Therefore, a monopoly company would soon be thrown out of the market through legislations and fierce competition. Regarding industry specific, I would measure environmental compatibility because the recent trend requires companies that promote environmental sustainable processes. I would also measure the dimensions of pending legal proceedings because they have a way of destroying the reputation of a company. A company without good reputation means the brand is not respected leading to low sales and low profitability.

References DVFA. (2008). Key Performance Indicators for Environmental, Social and Governance Issues. Society of Investment Professionals in Germany.