The social construction perspective on ESG issues in SRI indices

Abstract

How are socially responsible investment (SRI) indices’ and environment, social and governance (ESG) criteria derived? This article reviews the social construction theory and examines how the existing literature addresses and offers insights that can assist in answering the question. The article argues that social construction theory offers crucial insights into the development of ESG criteria in SRI indices and normative corporate sustainability practices. An examination of the development of ESG issues and SRI indices’ ESG criteria from 1990s onwards has been presented.

Keywords:

• Socially responsible investment (SRI)
• social construction
• SRI indices
• ESG criteria

Notes

1. CEM must have three main attributes, according to Welford (1998): (1) “it needs to be comprehensive, covering all the activities of the organization”; (2) “the system and procedures within it need to be understandable to everybody involved”; and (3) “the system must be open to review and there must be a commitment to a continuous cycle of improvement in the operations of the firm and in the positive environmental attributes of the products and services it will produce” (p. 10).

2. ‘Corporate sustainability’ is often referred to as business approach that adopts a long-term ‘green’ strategy by taking into consideration every dimension of how a business operates in the social and economic environment.

3. The Brent Spar was a North Sea oil storage and tanker loading buoy in the Brent oilfield, operated by Shell UK, and was no longer needed for operation in 1991. In 1995, the British government announced the support for Shell's application for disposing the Brent Spar in deep Atlantic waters at North Feni Ridge. Greenpeace, an international environmental campaigning group, denounced the decisions made by the British government and Shell UK, and thus organised a campaign against the plan to end ocean dumping of industrial waste (Greenpeace 2007). The campaign became an international saga when Greenpeace activists occupied the Brent Spar (BBC 1998).

4. Innovest is a global research firm that focuses on ‘non-traditional’ drivers of both investment risk and long-term performance. The firm's SRI analysis includes over 100 performance indicators grouped in ‘four pillars’ of sustainability: environment, human capital, stakeholder capital and strategic governance (Kiernan 2006).

5. SAM is an independent financial services group, which specialises in SRI. The firm focuses on institutional asset management, investment funds and private equity. It also developed the first global SRI indices, DJSI (Grab Hartmann and Goodall 2006).