By Samantha Clarke, Senior Paraplanner and Fellow of the CII.
What is Socially Responsible Investing?
Socially Responsible Investing (SRI) also known as social investment, sustainable, socially conscious, “green”, ethical investing or ESG (Environmental, Social and Governance) are all terms used to describe an investment strategy that seeks to consider both the financial return and social/environmental good to bring about positive social change.
Funds that offer SRI have strategies that will filter their holdings according to criteria that match the agreed objectives. Screening can be ‘negative’ in which a particular company’s shares will not be held – for example, armaments, gambling, tobacco or pornography business, or ‘positive’ where shares will be held in companies who are working towards a more sustainable future and are mindful of their social impact, for example, solar power.
Why should I invest this way?
Investing in this way has been growing into a widely-followed practice. A study (carried out by Morningstar Investment Management 2019) of 948 people showed that 72% of investors are at least moderately interested in ESG investing with broad-based interest across millennials, generation X (those born between 1965 – 1980) and baby boomers (those born in the years following the 2nd world war), so the interest is gathering amongst more and more of the population.
What are the different types of SRI Funds?
ESG – investing for Environmental, Social and Governance with the gist being that these three categories are important factors to a company’s ability to sustainably remain in business.
Environmental: – Climate change and sustainability
Social: – Diversity, Human Rights, Consumer Protection, Animal Welfare
Governance: – Management Structure, Employee relations, Employee Compensation
IMPACT – impact funds are more specifically built around putting your money to work at creating social good, by tackling social and/or environmental challenges.
FAITH-BASED – funds that typically use negative ethical screening as part of their investment process in order to create funds that meet the requirement of a named faith of religion.
As awareness has grown, especially in recent years over global warming and climate change, SRI has trended towards companies that positively impact the environment by reducing emissions or investing in sustainable or clean energy sources; screening out those companies that are considered damaging to the social and environmental good, such as mining which strips the Earths resources and creates pollution, in favour of seeking out companies that are engaged in social justice, environmental sustainability and alternative energy/clean technology efforts.
Goals of Socially Responsible Investors
Specific goals for SRI will likely be unique to the individual but understanding the various approaches that can be adopted is important to developing a strategy that is right for them.
Improving Returns:
The immediate assumption by many people is that focusing on social responsibility will mean sacrificing some returns for your portfolio. It is important to note that many SRI strategies are actually based on the concept that socially responsible companies will ultimately perform better over the long term. The idea is that corporations that develop a strong relationship with their workers, the surrounding community and the environment are fundamentally more sustainable and therefore, should ultimately produce better returns over time.
Cleaner Environment:
Protecting the environment and reversing the effects of climate change is a major priority for many investors, and there are a variety of ways to support those goals with your investments. It might mean focusing on investing in firms developing new technologies to help combat global warming or avoiding investments in corporations with business models seen as actively damaging to the environment.
Social Justice:
Social justice is another option with SRI. Focusing on companies with more gender and racial diversity on the board of directors and the rest of their workforce. Or it might be about investing in companies that are seen as being supporters of greater social justice through their work. Regardless, shifting cultural norms through business practices is a criterion many consider important.
Promoting Health:
Public health concerns, both at home and abroad, is another focal point that can be used to guide socially responsible investing. There are private companies developing important treatments for diseases that affect millions of people worldwide. Or it might just be wanting to invest in firms with the best track record in terms of providing benefits to their employees. Similarly, it might be to look to avoid any investments that can be seen as clearly detrimental to public health, like mining companies that are polluting local waterways or cigarette makers.
Promoting Peace:
Frequently, the factors driving global and local conflicts can be rooted in poverty and economic problems. But invested capital and growth in key regions can help bolster the peace process and prevent the more violent elements of society from taking root. As such, some investment strategies are focused around finding opportunities that will play an important role in contributing to a prosperous, peaceful time in a particular country.
Promoting Morality:
Clearly, there is no clear, universal definition of what is and is not moral, but there are plenty of options that can provide a framework for this approach. It could be a matter of offering up a transparent and open corporate structure, or it could revolve around the effect of their products. Likewise, many people might rely on their faith to help guide their decisions.
Who are sustainable investors?
Sustainable investors comprise individual retail investors to very high net worth individuals and family offices, as well as institutions such as universities, foundations, pension funds, non-profit organisations and religious institutions.
Who offers SRI funds?
There are hundreds of investment management firms that offer SRI investing funds and vehicles for SRI investors.
How do sustainable investment funds perform?
Sustainable investing spans a wide and growing range of products and asset classes, embracing not only equity investments (stocks), but also cash, fixed income and alternative investments, such as private equity, venture capital and real estate. Sustainable investors, like conventional investors, seek a competitive financial return on their investments.
Several research studies have demonstrated that companies with strong corporate social responsibility policies and practices are sound investments. Studies with such findings have come from Oxford University, Deutsche Asset & Wealth Management, Morgan Stanley Institute for Sustainable Investing, TIAA – CREF Asset Management and the United Nations Environment Programme Finance Initiative, among others.
How Anstee & Co can help you with Socially Responsible Investing.
We are a firm of Independent Financial Advisers (IFA’s). This means that the financial advice we offer is unbiased. Why not arrange a meeting today to find out more and to see how we can help you. The initial, “getting to know you”, the meeting is at our expense and is without obligation.
Our offices are located at: –
- Kettering, Northamptonshire
- Stamford, Lincolnshire
- Towcester, Northamptonshire
- London, Greater London.
We make full use of video conferencing facilities such as: –
- Zoom
- Microsoft Teams
- Skype
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We can also arrange a conference telephone call. There is no need to visit an office as all work can be handled remotely.
If you have any thoughts or comments about this article, ” Should I be a Social Responsible Investor?”, then we would love to hear from you.
Finally, the information contained in this article is for information purposes only and does not constitute financial advice. No action should be taken based on this information alone. Anstee & Co is authorised and regulated by the Financial Conduct Authority (FCA).
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