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SRI and related Indexes
Socially responsible investing (SRI) is the practice of making investment decisions on the basis of not only financial performance, but also on ethical, social, and environmental criteria.The idea of incorporating ethical or social criteria into the investment process is not new. Churches, universities and pension funds have been using so called "sin" screens (no tobacco, liquor or gambling investments) as far back as the 18th century. The modern era of socially responsible investing has its roots in the Vietnam War.
During the war an increasing number of investors became uncomfortable that their investment dollars were supporting companies supplying the war and they began to look for alternatives.
Interest continued to grow in the nineties with an increase in engagement between SRI funds and companies, a growing number of shareholder resolutions and greater pressure for companies to be transparent about their social and environmental impacts.
Nowadays both Private and Institutionals Investors are increasingly diversifying their portfolios by investing in companies that set industry-wide best practices with regard to sustainability.
In one sense, SRI is just like traditional investing because socially concerned investors pursue the same economic goals as all investors: capital gains, higher income and/or preservation of capital for future needs. However, socially concerned investors want one additional thing: they are demanding greater accountability with respect to where their money is being invested, and for what purposes, they don't want their investments going for things that cause harm to the social or physical environments, and they do want their investments to support needed and life-supportive goods and services.
From a purely financial point of view, the concept of corporate sustainability is also attractive to investors because it aims to increase long-term shareholder value. A growing number of investors is convinced that sustainability is a catalyst for enlightened and disciplined management, and, thus, a crucial success factor. Sustainability leaders are increasingly expected to show superior performance and favourable risk/return profiles.
In order to facilitate the investment choices of investors and asset managers, the Corporate sustainability performance is "financially quantified" by Socially Responsible Investment independent researchers (eg. SAM Group for the Dow Jones Sustainability Indexes or EIRIS for the Financial Times Indexes) who measure the performance of companies with regard to their environmental, social and ethical/governance impacts through very detailed analysis, this way determining a certain degree of risks and opportunities (the so called "Rating") connected to the evaluated companies.
Pirelli places particular emphasis and commitment on relations with the ratings agencies that deal with sustainability. This approach is a natural consequnce of the full integration of sustainability in Group's strategy.
It is no coincidence that our Chairman, at the beginning of the 2007 Sustainability Section in the Group Annual Report referred to stakeholders confirming that sustainability to Pirelli "is a fundamental choice, underpinning our Group's vision and strategies for growth, in all our business areas and management decisions, throughout the world".
Integration in strategy signifies, therefore, paying constant attention to the financial-social-environmental impact of every decision, monitoring the risks in terms of sustainability connected with the company activities to manage them in the best possible way to prevent new ones.