The biggest problem with socially responsible investing (SRI) is defining it. This became evident from a recent survey conducted by Hong Kong-based SRI house Kingsway Fund Management.

Director Patrick Choo oversaw an exhaustive interview with 138 listed companies in eight East Asian markets, speaking with investment relations people and more senior executives from companies deemed potentially suitable for an SRI investment.

In most cases, Choo says this was the first time these companies had been visited and queried about their social policies and corporate governance. They are used to receiving similarly themed faxes and e-mails from fund management companies in North America and Europe, which then promptly go ignored.

Kingsway, on the other hand, is introducing questions about sustainable practices, social responsibility and corporate governance that is new and often misunderstood by most listed Asian companies.

Kingsway presented its findings last week, and there are some encouraging results. First, of the thousands of listed companies in East Asia, Kingsway found only 50 that it would exclude outright from investment (such as those engaged in military or tobacco industries, or using animal testing, etc). That's quite a small number.

But Choo reports that few companies saw value in SRI-related questions, except those with dual-listings in the United States.

"We've done the first visit," Choo says. "I hope more follow from other fund managers. It's no good if the only people these companies see asking these questions is Kingsway. They just throw away SRI surveys they get from the West."

Kingsway has ranked eight countries (with Hong Kong and China lumped together) according to social responsibility, sustainability and corporate governance. This profusion of agendas tends to muddy the waters, however, as there is no correlation among them.

For example, South Korean firms come dead last in terms of responsibility and corporate governance - but on top for sustainable policies. Most countries tend to have similar swings.

Moreover, the methodology used by Kingsway tends to accentuate absurdities. It did not consider market capitalization when finding companies, but strove for an equal number of firms from each market, to give a feel to cultural norms.

The rankings Kingsway devised were, Choo freely acknowledges, arbitrary. For example, Philippine companies were ranked among the bottom in every way, especially in terms of corporate governance - except they have more women in management positions.

From this one may extrapolate that Philippine women are corrupt. This is surely not Kingsway's point but it shows that the data needs to be more rigorous.

Another example is Singapore's poor marks for corporate governance, because so many of those companies admitted being fined or scolded for this or that infringement. But, as Choo notes, Singaporean companies were honest about these things; other countries were rated more highly because their companies lie, as Kingsway gradually discovered. Surely a fund manager would pay a premium for a transparent company owning up to past mistakes.

And in terms of social responsibility, Kingsway noted with approval that companies in Malaysia and Indonesia have very good employment policies, while those in Hong Kong are terrible. Interpreted another way, ultra-efficient Hong Kong companies make their employees work very, very hard. What's the conscientious fund manager to do?

One last criticism: sometimes the specific results prompt scepticism. Are Malaysian companies really top when it comes to corporate governance? Choo suggested cronyism is dead in post-Mahathir Malaysia; to paraphrase Mark Twain, reports of its demise are premature. (On the other hand, Choo's criticism of South Korean firms' governance, which came dead last, is a useful warning.)

Kingsway is doing good work in a difficult field; with only $650 million under management, it lacks the resources to keep important issues in the public or corporate eye. But its attempt to map Asia's best and worst environments for socially responsible investors doesn't provide much clarity. This prompts two suggestions.
First, start small. SRI can mean a lot of different things. The example of corrupt women in the Philippines is an example of how competing agendas obscure a proper attempt at highlighting good and bad companies - and ultimately hampers getting them to change their ways. SRI should focus on a more narrow range of issues and build from there. Perhaps it should leave corporate governance to others; or put more emphasis on sustainability issues, and keep social responsibility on hold.

This connects to the second suggestion: SRI will only work in Asia if it accords to the region's values, which are not the same as in the West. For example, SRI in the United States is driven by religious groups, charities and universities and make employment of minorities or women a major issue, while European advocates use SRI to encourage companies not to lay off too many workers. In other words, SRI reflects these societies' own social strains and may not be appropriate to Asia.

Moreover, the definition of what constitutes an ethical company is going to change across societies. Do many people in Asia consider gambling or tobacco unethical?

On the other hand, there are critical issues in Asian society that make SRI potentially a powerful force. Everyone can relate to environmental issues, although the specifics can vary. SRI will only work in Asia if it is viewed as a locally developed solution to local problems. If it is considered a Western import of questionable value, it's going to remain feeble.

It is heartening to see Kingsway, a truly Asian company - its origins date to 1974 as the original Sun Hung Kai Fund Management, until it was bought by Hong Kong-based Kingsway Group in 2001 - raising these issues, even if the process is flawed.