Can Socially Responsible Investment Provide a Means of Environmental Regulation

The seemingly rapid growth of the market for socially responsible investment ('SRI') in Australia and other jurisdictions promises to make financing decisions more accountable to social and environmental criteria. Indeed, the ability of financiers to withhold funds and thereby hinder development, such as the decision of the Australia and New Zealand Banking Group Ltd in 2008 to shun financing a Tasmanian pulp mill planned by Gunns Ltd, raises hopes that financial institutions could act as surrogate environmental regulators. The long-standing SRI movement arose partly as an answer to the lacunae or weaknesses of official regulation, providing a means by which ethical investors could challenge corporations partaking in socially egregious or environmentally irresponsible practices condoned by authorities. Yet, these aspirations appear to have been too ambitious. Lacking sufficient market leverage, and reliant on relatively tame voluntary codes of conduct, paradoxically the success of the SRI movement increasingly relies on the state itself. SRI depends on weightier public policy reforms in such areas as economic incentives and fiduciary duties, although considerable uncertainty persists concerning which policy reforms could most effectively advance SRI. Concomitantly, reformers must justify why investment institutions should be held legally accountable to a higher standard than those firms they finance. Unless these barriers to SRI and its regulation are resolved, it is doubtful whether SRI in Australia or elsewhere can contribute significantly to environmental governance.