Socially Responsible Investing

Socially Responsible Investing (SRI) or ethical investing can be broadly defined as the integration of social and environmental principles into the investment decision-making process. The Social Investment Organization (SIO), the national nonprofit association for the SRI industry in Canada , describes three main components to SRI investing.

1. Screening: Negative screens are based on values-based social criteria and are frequently used to exclude companies such as those involved in tobacco, alcohol or weapons production.  Positive screens are used to identify industries that create benefits for investors and the planet, such as alternative energy. Bottom-up screens help identify firms with best-of-sector practices relating to environmental impact, community involvement and employee relations.

2. Shareholder Activism: Instead of simply avoiding problem companies, some SRI investors try to exert pressure to change them. This involves activities such as the use of shareholder resolutions or proxy voting policies.

3. Community and Economic Development: This process looks for companies that are contributing to the well-being of a community by investing in equity vehicles that target community development or serve low-income or disadvantaged groups.

"Green” investing, which focusses on renewable energy and clean water technologies, is a popular theme that is also considered part of the SRI world by many investors.  Mutual funds that focus on this particular area are still hard to find.

Core and Broad SRI

Core SRI describes the traditional process of using negative screens, positive screens, and bottom-up research to build SRI portfolios. The majority of the SRI mutual fund universe in Canada falls under this classification.
Broad SRI refers to asset management firms that have formally incorporated an analysis of environmental, social and governance (ESG) factors into their traditional stock selection models without the explicit use of negative or positive screens. Here, SRI is a tool to supplement the analysis of management quality and the risk/reward profile of a particular firm.
Interest in Socially Responsible Investing is growing as more and more people become concerned about climate change and corporate governance, and want their investment portfolio to reflect these concerns.

At The Ivey Group, we have the tools to build and manage a customized SRI portfolio as opposed to purchasing “ethical” mutual funds that may or may not meet your particular criteria.