Socially Responsible Investing (SRI) is an approach that focuses on generating financial returns by investing in companies whose operations, products, and services are aligned with certain social and ethical benefits. Those who adopt this approach to investing apply not only financial criteria in their asset selection process, but also additional non-financial measures based on ethical, religious, and moral principles.
Supporting Good While Avoiding Harm
A basic principle of SRI is to invest in a way that intentionally avoids funding companies, products, and activities that are deemed bad or “sinful” according to one’s values, generally referred to as ‘negative screening.’ Investors may, for instance, identify companies and products responsible for promoting and profiting from gambling, the proliferation of assault weapons, or tobacco sales.
A type of SRI approach has been practiced for centuries by followers of the Islamic faith, who align their investment for compliance with Shariah law. Similarly, Quakers in the Religious Society of Friends in the 18th and 19th centuries refused to invest in the slave trade – another example of SRI exclusionary screening.
SRI’s More Recent History
During the era of South African apartheid, there were investors who adopted an SRI strategy to shun companies that benefited from or supported apartheid. The consequent lack of economic support put pressure on South Africa, and is credited with helping reverse its apartheid policy.
Most recently, SRI can be seen at work in the approach taken by investors who have divested assets connected to Russia following its invasion of Ukraine. Meanwhile, with greater awareness of global issues like climate change, SRI investors over the past 20 years or so have added environmental and governance issues to their criteria. Today, the inclusion of environmental, social or governance (ESG) criteria in the investment process is also perceived as an additional risk management measure.
Deploying $35 Trillion in SRI
Today SRI is no longer relegated only to religious values as it once was and is now embraced by a growing and highly diversified range of investors – including individuals, institutions, and governments. One of the big drivers of SRI right now, for instance, is the worldwide effort to achieve net-zero carbon emissions by 2050, per the Paris Climate Change Accord.
Data confirms that investing according to SRI principles carries no additional cost, and more ways to invest are continually being created to meet demand from both professional and individual investors. That has catapulted the value of today’s managed SRI investments past the $35 trillion mark according to the GSIA 2020 report. The GSIA defines sustainable investments as an approach that considers environmental, social and governance (ESG) factors in portfolio selection and management. Robust growth in SRI assets under management is expected to continue for the foreseeable future.
To learn more about SRI, explore the newly published book Sustainable & Responsible Investing 360°: Lessons Learned from World Class Investors. This timely book contains in-depth interviews with 26 leading SRI investors, and you can obtain your copy here.
