SRI remains divided by personal opinion

Determining what is ‘socially responsible’ remains a struggle in investment management as personal investor opinion remains divided, according to the latest MM survey of socially responsible investment (SRI). This has led to the sector varying significantly from fund to fund.

An investment that is deemed to be socially responsible is normally dependent on the nature of the business the company conducts. Ethical investors prefer to avoid companies who partake or are involved in certain activities such as tobacco, alcohol, arms or gambling.

An Ethical Investment Research Service (Eiris) survey found that 82 per cent of UK customers want financial product providers to pay more attention to environmental, social and governance issues (ESG). Participants said they would be more likely to invest in a company if they consider things like climate change, environmental management, human rights and employee relations.

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Some claim that companies with a high rating for ESG factors are more likely to outperform and secure investment. Financial markets have increasingly realised that integrating the environmental, social and governance concerns of the public into investment decisions makes good business sense. Some assume that ESG funds can restrict the possibility of sizeable profits, however only a few of the SRI funds in the survey produced meagre returns while the majority sat well in their individual categories.

There are two main methods of SRI: positive and negative screening. Managers carrying out negative screening identify those who partake in bad practice so they can therefore avoid these companies for involvement in environmentally, ethically or socially damaging policies. Others prefer positive screening to find companies who are socially responsible, but screening can restrict the range of companies that can be invested in.

There are many fund managers out there who will happily, and are prepared to, invest in anything, providing that certain environmental and cooperate boxes are ticked. These are usually the same companies who are opposed to the term ‘negative screening’, and will invest in industries that some consider unethical, including tobacco, animal testing and gambling.

Supporters of SRI say it not only means that companies are better prepared for the future and have a decreased chance of disaster, but it can also be financially and morally rewarding. Opponents, however, view unethical screening as a potential waste of time and profit.