Socially responsible investments on global financial market and perspectives of their development in Ukraine

Abstract

Sustainability is one of the most important trend in financial markets over the last decade. It is supplemented by two obvious trends: on the side of investors - their desire to increase investment in social responsible investment; from issuers or recipients of investments – their motivation to focus on corporate social responsibility, thereby focusing on sustainable development and environmental, social and governance issues. There are certain demand and supply drivers of this process which have been investigated in the article for Ukraine. In a generalized way they are summarized as follows: strong demand of society and government on Global aims issues, that are confirmed by different agreement on different levels; low or insufficient level of environment, social and governance performance; supportive and enabling public policy; strict requirements of financial regulators and exchanges for investors and issuers; existence of influential public investments for resolving of global problems and aims; appropriate income level and standards of living in a country. On the supply side – additional profit for investors, higher rate of return for SRI than for benchmark, that could be achieved by different direct and indirect ways. The supporting or contributing factors on the supply side are sufficient market liquidity, moderate (not weak) information efficiency of capital market, developed institutional sector of investors, existence of market infrastructure for SRI. Although the advantages for individual and institutional investors and issuers are becoming clearer today, it should be recognized that the development of socially responsible investment market in the world is more demand driven yet. There is a high demand but low supply side factors for development of socially responsible investments has identified in Ukraine. To understand the situation, helps analysis of sustainability performance of Ukraine based on the metrics: RobecoSAM’s Country Sustainability ranking; Sustainable competitiveness index; Sustainable Society Index. The negative level of such elements like resource management, governance and natural resources form the high demand on development of SRI in Ukraine. However, from supply side Ukraine has extremely low level of assets under the management of private pension funds, investment funds and insurance companies, which are the main sources of SRI in other countries. Small capitalization of financial market, its fragmentation and low liquidity correlate with lo information efficiency. Last one doesn’t give the opportunity efficiently price the risks and opportunities that emanated from environment, social and governance issues. Besides this there is a low motivation from companies.