Articles

Authored by Laurie Haelen, AIF®, Senior Vice President, and Team Leader - Wealth Advisor 

Since the early 1990s, there has been an evolution taking place within the vast and complex world of investments. Once regarded as a strategy with a lot of heart and little gain, Socially Responsible Investing (SRI) has become more sophisticated and accessible. SRI investment assets grew to $6.57 trillion by 2014.* In addition, the ways that one can access SRI and express a particular point of view have increased exponentially, since the early days of this investment philosophy. An investor can screen out, for example, a lot more factors much more easily than was feasible in the past.

In order to understand the nuances of SRI, it is critical to realize just how many styles of investing fall under this category. SRI, by definition, is any investment strategy that seeks to consider BOTH financial return and social good. Investors are looking to promote concepts and ideals they feel strongly about. The three main ways to do this are:

1. Investing in companies that align with the investor’s values. This could include the environment (also known as Green investing), religious beliefs and human rights, among others. These areas are also known as Environmental, Social and Governance and referred to as ESG Investing.
2. Shareholder Advocacy: Investors proactively seeking to influence corporate decisions to be more beneficial to society at large by educating the public on issues and attracting media attention to issues at corporations.
3. Community Investing, which is the fastest- growing segment within SRI. This method involves directing investors’ capital to communities in the U.S. and abroad that are under-served by more traditional financial lending institutions.

In the past, the most popular strategy for investors looking to augment their portfolio with SRI investments was to restrict a particular company or sector from their portfolio, such as tobacco or weapons. This is known as a Negative Screen methodology and actually got its beginnings in the 1700s as the Quakers sought to avoid having members that took part in anything related to slavery. In the modern age, there is more transparency for investors and it is relatively easy to implement this strategy than it was in the past.

Today, there is a new generation of SRI, and it is called Positive or Impact Investing. Versus the Negative Screen approach, Positive Investing involves making investments in companies believed to have a positive social impact. It includes the aforementioned “ESG”-Environment, Social and Governance but introduces the concept of “Sustainability” into the SRI equation. This refers to choosing companies that are successful financially, have strong long-term performance, and are leaders in areas such as social justice and environmental issues. In other words, there are companies who are thinking beyond profitability and instead thinking about their long-term impact on the world. Recent studies have shown that these investments in these companies have been very lucrative for investors versus those investments in companies with lesser focus on these issues.

For investors interested in the concept of SRI, the easiest way to see if this strategy is right for some or all of your investment assets is to review the many choices available today with your advisor. Although the options are much greater than they were many years ago, there are still many factors to consider to select a strategy that is right for you.

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