Socially Responsible Investing (SRI), also referred to as “sustainable investing” or “impact investing,” is an investment approach that heavily weighs non-financial factors such as environmental, social, and corporate governance criteria in making an investment decision. The modern version of effecting change with investments began with funds targeting their investments in the late 1960’s.
A growing number of investors today want their money to do more than just multiply; they want to invest in companies they believe are helping to make the world a better place. Our team has found that more clients are thinking holistically about the world and their personal impact.
An SRI approach to investing considers three main categories of criteria:
Environment:
- Climate Change
- Resource Depletion
- Deforestation
- Produce Lifecycle Management
- Waste Management
- Pollution
Social:
- Human Rights
- Child Labor
- Working Conditions
- Employee Relations
- Health and Safety
- Diversity and Inclusion
Governance:
- Bribery and Corruption
- Executive Pay
- Risk Management
- Board Diversity and Structure
- Corporate Reporting
- Political lobbying and Donations
Where do I begin?
The first step is to figure out which factors are most important to you, or what impact do you want your investment to have? Taking these questions one step at a time, can help narrow your focus.
- Of the three main categories (Environment, Social, Governance), which appeals most to you?
- Within that category, which factor listed above is most aligned with your value system?
Next there are three “filters” through which an investment can be further targeted, or the how would you like to make an impact?
ESG Integration – Choose to invest in companies which show a commitment to specific ESG factors.
For example:
- A technology company with a goal of a carbon neutral footprint by a specific year.
- An insurance company accounting for climate change during the underwriting process.
Screening – Chose to include or exclude investments based on a set of criteria.
For example:
- Invest in Alternative Energy companies.
- Do not invest in companies which benefit from the sale of firearms.
Impact – Use stock ownership for engagement with a company’s management and advocate for change.
It is difficult for one shareholder to influence change at a large corporation. However, when your investment is pooled with other like-minded individuals into a mutual fund, the fund manager can have leverage to engage with a company’s management and advocate to improve ESG integration. This can create a win-win-win outcome; positive changes that benefit the company, their investors and society.
Once you know WHAT type of impact you would like to make, and HOW you would like to make it - the search for investments that fit your criteria can begin.
What does an SRI portfolio look like?
An SRI investment strategy can be to invest in a portfolio that covers the spectrum of categories discussed above. Responsible investing can be more than a “feel good” approach. It can lead to investing in more efficient, more profitable companies that are positioned for growth.
For example:
- A company with a commitment to the environment may be at a smaller risk of receiving regulatory fines.
- A company focused on using fewer resources can reduce the cost of packaging and product weight, therefore reducing supply chain costs (such as trucking).
Responsible investing is about incorporating more data into your investment approach. Our team can help build a portfolio which not only includes investments that have been screened for traditional financial factors, but also considers ESG factors.
Let our team help you make decisions around your investments which align your financial goals and your values.
If you would like to get started with an SRI investment portfolio, or if you have questions about investments -
reach out to our team!
Read more articles by Richard Miller