While the audience for Socially Responsible Investing ( SRI ) is growing, few people I have spoken to have a clear, comprehensive view of exactly what it is! Some call it ESG investing (environmental, and social governance issues) others call it Green or Sustainable. These are all synonymous terms for the same financial movement that exists within the greater global financial system. It allows investors the opportunity to invest with their values while providing them with competitive returns in relation to traditional Wall Street type investments. How this is accomplished takes a brief trip back in time to the 1970’s and 80’s.
Back then we saw the creation of several financial institutions that were completely devoted to the concept of Socially Responsible Investing. Today, these same firms have grown, evolved, and are thriving to the extent that they exert substantial influence on the greater financial world at large. The most substantial of these are Calvert, Pax World, Domini, and Parnassus mutual fund companies as well as First Affirmative Financial Network which is an SRI investment advisory firm. These companies distinguish themselves from traditional Wall Street investment firms by applying four criteria to the selection of the companies they will invest in. These are:
• Shareholder activism. Do the companies respect and respond to the concerns of their shareholders?
• Community involvement. Do the companies have a positive influence on their communities?
• Affirmative screening. The inclusion of companies that have a positive influence on the world and society at large. i.e. environmental, sustainable, etc.
• Negative screening. The exclusion of companies that have a detrimental impact on the world and society at large. i.e. polluters, substandard employee treatment, human rights violators, etc.
It is important to note that SRI is not something separate from the greater financial world but it does apply a much more rigorous selective process of picking companies to invest in using the above mentioned criteria. For example, approximately half of the companies that are found in the Domini 400 social index which has become the benchmark for SRI are also found in the S&P 500.
As the Green, Sustainable, SRI movement continues to evolve the hope is that it will continue to exert increasing pressure on global corporate structures so that they will consider more deeply the influence and responsibility they have on the society and world at large. Although there have been great strides taken in this direction it is still a David and Goliath situation. Consider that by the most liberal estimates the SRI industry in the USA is at about $3 trillion which is about the same size as the combined assets of Goldman Sachs and J.P. Morgan Chase alone. Needless to say there is still great work to be accomplished here! In subsequent articles we will continue to expand and elaborate on these themes. Hope you enjoyed reading and until next time, invest wisely.
Guy Le Sage
Guy Le Sage is a Financial Advisor with Horizons Sustainable Financial Services in Santa Fe, NM, serving clients across NM and licensed in over 20 other states. Horizons’ is an Independent investment firm providing investment advice to clients who want to invest with their values and focus on sustainable investment practices.