Socially responsible investing (SRI) is increasingly growing in importance to investors looking for an ethical way of finding financial returns. Non-ethical investors generally see SRI as unnecessary.
Due to the growing strain of natural resources caused by a rapid growth in the world’s population, Wall Street’s previous dismissal of sustainable and responsible investing as a feel-good fad has undergone a reversal. Here, we look at five key points to consider when investing in an SRI fund.
1. Look at a company’s screening process. It can be hard to identify who is ‘socially responsible’. While some determine this by personal opinion, others prefer to partake in negative or positive screening in order to recognise which companies are involved in environmentally, ethically or socially damaging policies before investment.
2. Determine what is ‘responsible’. Some struggle to decide what is socially responsible; others prefer to screen out unethical companies. It has attracted negative publicity as it is argued that selective investors are purely compromising their returns. Gerrit Heyns who runs Global Environmental Enterprise, brands negative screening as “competing with your hands tied behind your back”.
3. Know what you want. Be sure what comes under your own personal screening process. More than 80 per cent of UK consumers want financial providers to take environmental, social and governance (ESG) factors into account. A survey from Eiris showed assets under management within the SRI space have grown from £4bn to £11bn in the past 10 years.
4. Consider the future. Both economic and ESG performance are both proven to be mutually dependent. Firms who take ESG seriously are more likely to lead markets in the future and be respected by investors.
5. It is not all the same. Many ethical funds will have different processes and screening. Some funds may include tobacco and alcohol companies but may not want gambling stocks. Funds may have stipulations, for example, Sarasin says it will invest in companies who test on animals, but provided it has no more than 5 per cent of consolidated revenues in genetic engineering used in farming and agrochemicals.
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