Major custody banks are increasingly adding socially responsible investment factors into their monitoring services.
For decades custodians have had tools that track how much institutional clients invest in given securities. For example, computer programs can alert institutional advisers whenever a portfolio stops complying with its investment policies.
But in recent years, custodians have been adding elements that allow customers to monitor their investments' sensitivity to social matters.
"There's an increasing social awareness in the marketplace around things like environmental concerns, human rights, and the future of the world from a climate point of view," said Rajesh Kumar, a vice president at JPMorgan Chase & Co. and product manager for its compliance reporting services in Europe, the Middle East, and Africa. "We see it as a competitive advantage that we have a comprehensive" socially responsible investing capability. "It's enabling us to retain and attract business."
Mr. Kumar, who is based in London, said JPMorgan Chase is enriching its database with company information provided by the New York corporate governance services provider RiskMetrics Group.
JPMorgan Chase expects to complete the effort by the end of April. It said the enhancements will let clients drill down into more specific definitions of their restrictions pertaining to investment assets. For example, clients will be able to discriminate between a company that produces alcohol and another that sells it in restaurants, or they could set the percentage of alcohol-related revenue that they would be willing to tolerate in an investment. JPMorgan Chase has provided more basic SRI monitoring services for the past 12 years.
Northern Trust Corp. of Chicago announced March 18 that it had added four new guidelines to its compliance monitoring capabilities, which had previously identified companies involved in tobacco or gambling.
Now institutional and wealth management clients who want to follow Islamic law, which forbids the use of debt, can use Northern Trust's services to make sure that they do not invest in companies involved in, for instance, predatory lending.
Customers can also choose to avoid investments in political hot spots such as Sudan and Iran, or companies involved in animal testing or land-mine production.
"The reason we're doing this now is really to meet our clients' requirements," said Lenora Kelley, risk services senior product manager for Northern Trust Investment Risk and Analytical Services. "These are issues that they're interested in."
Ms. Kelley and her team are working on adding factors in the coming months that would allow investors to stick with environmentally sympathetic companies.
Clients who might be able to use the new services include high-net-worth individuals and mutual fund firms, but public pension funds are the most obvious target, because their state regulators influence their investments.
For example, in recent years, after activists and nonprofit groups protested genocide in Darfur, states including Arizona and California passed laws that restrict public investment in Sudan. States such as Illinois have passed similar laws in recent months targeting companies that do business in Iran.
The California Public Employees' Retirement System's board of administration said in May 2006 that it had voted to ban investments in nine companies that do business in Sudan, including PetroChina Co. and Sudan Telecom Co.
These "issues continue to become more important to us," said Clark McKinley, an information officer at the system. "Integrating them into investment decision-making can be challenging. We will continue to review the research and new tools with great interest."
State Street Corp. of Boston said in October that it had enhanced its compliance monitoring capabilities for socially responsible investing, and Bank of New York Mellon Corp.'s BNY Mellon Asset Servicing plans to add more capacity so its clients can screen for human rights and "green" credentials.
Years ago the New York custodian began providing investment services that excluded stocks involved alcohol, tobacco, and gambling, said John Savage, national sales manager at the servicing unit.
"You're seeing more focus on the SRI side," he said. "We've responded accordingly."
