Although it once denoted ‘socially responsible investing’, SRI is now generally understood to stand for ‘sustainable and responsible investing’, according to the UK Sustainable Investment and Finance Association.
But SRI is generally now taken to cover any form of investment which takes ethical, social and/or environmental issues appreciably into account.
For many advisers the nuances in terminology are too subtle to spend too long evaluating. Even recognised ‘green’ financial advisers such as Olivia Bowen, director and financial adviser at Gaeia, say the terminology is largely “interchangeable” for them.
But Julia Dreblow, founder of sriServices, an independent green and ethical investment consultancy for UK financial advisers, explains the significance of knowing the distinctions for advisers.
“Ethical investments place significant emphasis on ‘ethical’ or ‘values-based’ issues such as tobacco, armaments, alcohol, in a way that other SRI options often do not,” she says.
“Socially responsible implies a major emphasis on ‘social’ – or ‘people related’ issues and has therefore fallen out of favour as a generic descriptor to describe the entire market, which in the UK focuses more on sustainability and includes social and environmental issues.”
What is more, investors are all different and while some may have strict ethical, ‘dark green’, demands, the majority of SRI investors are certainly a lighter shade, who invest in sustainability themes.
“It seems an interesting yet common-sense way to invest their money,” says Mr Appleby. “They also like the fact that, through their investments, company management are getting the message that shareholders do care about society and the environment.”
Some clients and advisers can be concerned that SRI funds underperform their secular peers. But as this fund universe is so diverse it is not appropriate to consider them all together and, adds Mr Appleby, literature reviews on this subject have concluded there is no significant difference between SRI and non-SRI funds.
“That said, as with mainstream funds, some investment teams are going to be more successful than others,” he says. “It is easy to cherry pick a particular SRI fund to back up either side of the argument, but not helpful.”
Ms Dreblow adds: “Each SRI style leads to a very different range of investment strategies which in turn affects performance in different ways.
“In general terms – for each fund strategy there will be times when the investment markets are in its favour and times when they are not. This is the same as any other investment strategy and the reason why clients should not put all their eggs in one basket.
“However, this is often more to do with volatility than long term performance as SRI funds rarely ‘index hug’.”