What is Socially Responsible Investing
Socially responsible investing (SRI) is the integration of environmental, social and corporate governance (ESG) factors into the selection and management of investments. The goal of SRI is to generate attractive long-term financial returns by investing in companies that can have a positive impact on society.
The concept of modern responsible investing has been around since the 1960’s but continues to evolve as new global themes emerge. Today, SRI is a broadly defined term that encompasses a number of strategies like values-based investing, impact investing, fossil fuel free investing, sustainable investing and more.
According to the Responsible Investment Association, assets in SRI strategies were $1.5 trillion at the end of 2015, which is a 50% increase from 2013. A recent survey by the group found that 82% of investors in Canada would like some exposure to SRI strategies in their portfolios.
Some SRI strategies use “positive screens” to focus their investments in companies that score well on ESG factors such as the responsible use of natural resources, healthy labor relations, a strong health and safety record for employees and fair executive compensation programs.
Other SRI strategies will also use “negative screens” to exclude companies based on ethical, moral or religious beliefs. Typically, these screens remove companies in the tobacco, alcohol, gambling, nuclear energy and military sectors..
Climate change is causing many investors to re-think the idea of deriving financial gain from the ongoing extraction and burning of oil, gas and coal. They may also be concerned that new carbon-based tax regimes could hurt the business of companies with such large carbon footprints. To address this issue, some strategies use a fossil-free approach that excludes investments in invest in oil, gas and coal companies.
Climate change isn’t the only environmental challenge today. Focus on a broader concept of sustainable investing on companies involved in energy efficiency, renewable energy technologies, water infrastructure, food and agriculture, forestry and waste/pollution management.