Socially responsible investing through voluntary codes

Introduction: Can socially conscious investors help abate climate change and other environmental problems and thereby steer the economy towards a more ecologically sustainable future? This chapter examines the role of voluntary codes in promoting and governing sustainable and responsible investment or socially responsible investing (SRI). In examining the design, goals and implementation of voluntary codes, it focuses on the identity of the responsible parties; this is a crucial determinant for a code’s quality as a mechanism of governance of the financial market. The chapter concludes with some remarks about the role of such codes in the future governance of financial markets and promotion of SRI. The financial sector, comprising banks, institutional investors such as pension funds and insurance firms, and retail investors who buy into mutual funds, has come to rival the productive economy in significance. Its role in mobilising capital resources for development, brokering financial transactions and managing investment risks seems to have made it critical for economic growth. Yet, while some commentators such as Niall Ferguson salute finance capitalism as “an indispensable factor in man’s advance from wretched subsistence to the giddy heights of material prosperity that so many people know today’, it has been disparaged by others for its evident irrational exuberance and precipitation of economic crises. The turmoil in international financial markets since 2008 is the most dramatic example.