MFS Signs On to U.N.’s SRI Investing Principles

MFS is the latest in a growing number of asset managers to sign on to the United Nations’ Principles for Responsible Investment.

The U.N., in explaining the principles, cites a “growing view among institutional investors that environmental, social and governance (ESG) issues can affect the performance of investment portfolios.” The principles, which were launched in 2006, are a framework for investment managers and asset owners to incorporate ESG criteria into their investment decisions and ownership practices. Firms commit to the principles “where consistent” with their own fiduciary responsibilities.

MFS says that its approach to managing money and interacting with clients will not change. Becoming a signatory is “an affirmation of what we have already been doing rather than a change in approach going forward,” says a spokesman for the firm in an e-mail response to questions.

MFS CEO and CIO Robert Manning said in a statement, “By committing to the U.N. [principles], MFS is formally recognizing that environmental, social, and corporate governance factors can play a role in valuing the companies in which we invest.”

Other U.S. asset manager signatories that explicitly bill themselves as practicing socially responsible investing (SRI) have signed on to the principles, such as TIAA-Cref, Calvert, Domini Social Investments and Pax World. But other large U.S. asset managers — which, like MFS, do not call themselves SRI shops — have also signed on, including BlackRock, JPMorgan and Russell Investments.

The activist group Investors Against Genocide questions “the seriousness” of some firms’ commitment to the U.N.’s principles for responsible investment because of their continued investments in oil companies that are linked to the genocide in Darfur.

The MFS Emerging Markets Debt Fund, for example, held $5.8 million in Petronas as of the end of October, according to a regulatory filing. It is not clear whether the fund still holds those investments.

The activists say companies such as Malaysian Petronas and Chinese PetroChina have ties to the government of Sudan, which is accused of committing genocide and using its oil revenues to fund purchases of arms. Investors Against Genocide has waged a very public campaign to pressure fund firms to divest from these companies.

When asked if divestment from companies linked to the genocide in Darfur would be part of becoming a signatory to the U.N.’s principles, the MFS spokesman responded via e-mail, “No. The aim of the Principles is to help investors integrate consideration of ESG issues into investment decision making and ownership practices.”

The MFS spokesman further states, “Our priority continues to be fiduciary duty to our clients and helping them achieve their investment objectives. ESG factors, to the extent material to a company, should be considered in assessing value… Our analyst team has considered ESG factors for some time.”

BlackRock, another signatory to the principles, is a holder of PetroChina through its iShares subsidiary, says Eric Cohen, chairman of Investors Against Genocide.

The iShares MSCI Emerging Markets Index Fund held $266 million in PetroChina shares as of Nov. 30; the iShares FTSE/Xinhua China 25 Index fund held $363 million in PetroChina shares as of the end of October, according to regulatory filings.

“[O]ur fiduciary responsibility is to our funds’ shareholders. This means that for our passively managed funds, we are obligated to track the funds’ underlying target indices,” a spokeswoman for the firm writes in an e-mail response to questions.

She notes the firm’s announcement of its development of a “genocide-free” iShares fund last November, partly based on conversations with Investors Against Genocide. The firm offers iShares clients socially responsible investments, “and thus we provide clients choice when making their investment decisions,” she adds.

BlackRock became a signatory to the U.N. principles in November 2008, according to Alex Popplewell, managing director and head of socially responsible investment at the firm. (Popplewell responded via a spokeswoman.)

BlackRock completed its acquisition of Barclays Global Investors and its iShares unit from Barclays in December. Barclays is not a signatory to the principles.

The rate at which firms are signing the principles has increased recently, says Elliot Frankal, communications manager with the U.N. From August of last year through January, there were 120 new signatories. In the same period a year earlier, there were only 62, he says.

There are currently 689 signatories in total and 359 of them are investment managers, Frankal says. About 60 U.S. asset managers have signed on, according to the U.N.

Paul Hilton, director of sustainable investment business strategy at Calvert, says the principles are gaining popularity in the U.S., particularly among pension funds. But with the pension funds on board, asset managers also see the benefit of signing on, because they do a lot of the money management for those funds.

“When there’s business to be had, it certainly makes sense for asset managers to show they can do this,” Hilton says. “At the heart of [the principles] is the belief that in looking at these extra investment factors, you can come up with better investments.”

Regarding the criticism of certain investment manager signatories by Investors Against Genocide, Hilton says the most important thing is for the U.N. to get firms to sign on to its principles. “If you set the bar too high right off the bat, it makes it very difficult to get folks involved. I think over time, the intention is for [the principles] to become more stringent.”

The U.N. also tracks the degree to which signatories adhere to the principles and this serves as an “accountability mechanism” for the initiative, says the U.N.’s Frankal.

The 2009 “Report on Progress” found that 77% of the investment manager signatories engage in screening of investments. “While ethical considerations are at the forefront in determining screens, so are other issues more directly related to risk and return,” the report says.