Mainland investors to get SRI option

China is expected to launch its first mutual fund to invest in the mainland's "socially responsible" listed companies next Friday.

Analysts said the government wants to encourage mainland firms to put more emphasis on socially responsible activities, rather than just profits.

Shanghai-based Industrial Fund Management Co Ltd got government approval to issue its socially responsible investment (SRI) fund last week and plans to raise up to 10 billion yuan.

No less than 80 percent of the fund's equity investment should focus on social responsibility, according to its prospectus. China Construction Bank will be the custodian of the fund.

The fund will invest 65 to 95 percent in equity, up to 30 percent in bonds, and up to 20 percent in asset-backed securities.

Industrial Fund will select companies according to four criteria - economic responsibility, responsibility for sustainable development, legal responsibility and moral responsibility.

"We will assign research teams to those companies and give scores based on the four criteria," Du Changyong, investment director of Industrial Fund, said. "The final score will be based on the four criteria, and companies with high scores will be our investment choice."

"We will choose companies in each industry and we have no preference for any specific industry," Xin Zhao, assistant director of Industrial Fund, said.

SRI funds have been around in other countries for years. The average annual return of the US Domini SRI index was 20.83 percent from 1990 to 2000 - higher than the 18.7 percent on Standard & Poor's 500 index. In Japan, the first SRI index, MS-SRI, posted over 400 percent premiums over the TOPIX index in returns from 1993 to 2006.

Zhou Liang, head of Lipper China Research, said SRI funds focus on a small group that emphasizes social responsibility and may not be able to get investors' interest at the early stage.

"In addition, the weak stock market over the past two months has seen investors steer clear of equity and fund investment," Zhou said. The Shanghai Composite Index recently plummeted 17.3 percent in a fortnight.

Analysts expect more SRI funds to be launched in the future, but said they will take time to develop.

(China Daily 03/19/2008 page15)