Higher returns are typically associated with higher risk, sometimes at the expense of the larger social good. However, with rising awareness, many now prefer investing their money, not just with the objective of a monetary return, but also with the aim of contributing to a larger social well-being. Reports indicate that a growing number of investors feel societal concerns should be an important part of their investment focus.
Socially responsible investing (SRI) refers to investments driven by sustainability, social conscience or ethics. In this form of investment, investors look at putting their money into areas they are passionate about, with profit maximisation secondary. This kind of investment can be done in three ways. First by investing in companies that the investor believes adhere to values such as environmental, social and governance. This is collectively known as ESG investing.
Second, as shareholders, socially responsible investors proactively influence decisions in the corporate space so that they do not have a detrimental impact on environment or society. And finally, by community investing, more and more investors tend to divert their capital into areas or communities that are under-served.
Recent reports have shown that investors’ perception towards ethical investing has changed over the years. According to the Great British Money Survey by Abundance – a London-based firm specialising in renewable energy investment – 72 per cent of people want to know where their money is being invested, 70 per cent of people want to invest in things that deliver good returns and don’t harm the environment and 70 per cent would be unhappy if they discovered their money was invested in unethical businesses. This finding is in stark contrast to the commonly held view across much of the financial services industry that ethical investment is a niche or minority activity.
Investments in companies involved in human rights abuses and child labour were considered the most unethical of all. Tax avoidance was also identified by two-thirds of survey respondents. Several respondents also saw climate change as a big problem while 36 per cent considered new forms of fossil fuel extraction such as fracking to be unethical and 24 per cent considered fossil fuel development in general as unethical too.
One of the surprising findings of this survey was the huge concern about the consequences of fossil fuel investments. While worries over the impact of carbon emissions on the climate are clearly important for a significant minority of people, about two-thirds said that they thought fossil fuels as an asset class were becoming more risky over time.
While a number of investors are now conscious of investing with a social purpose in mind, it is still a very small part of the investor community.
