Aligning Your Investable Dollars With Your Values
Sustainable, responsible, and impact investing (SRI) is an investment discipline that considers environmental, social, and corporate governance (ESG) criteria, in addition to financial analysis, to generate long-term competitive financial returns and positive societal impact.
Many SRI investors are looking to align their money with their values. For these investors, an important aspect of SRI is excluding names that conflict with their values. For example, many SRI investors will not invest in companies with significant involvement in producing, marketing, or distributing firearms, alcohol, tobacco, gaming, nuclear power, pornography, or military weapons systems.
In addition to exclusionary criteria, SRI investors also look for positive ESG criteria to identify the companies best positioned to deliver strong long-term financial performance. There is a general belief that companies with better performance on ESG issues, such as strong workplace practices, product safety, and environmental protection, will have better financial performance. This “ESG integration” approach is often an integral part of the fundamental research process at many firms that pursue SRI. Multiple studies have shown that there is no long-term performance cost to SRI. In fact, some studies have shown that companies with strong ESG profiles have better long-term management, have lower risk profiles, and are positioned to outperform their peers.
Using your position as an owner in a company to push the company to improve social and environmental performance is a key component for many SRI managers. There are a number of tools available for shareholder advocacy, including phone calls, written correspondence, in-person meetings, and site visits. Communications can range from asking simple questions in order to clarify your understanding of their policies, to engaging in a long term, in-depth dialogue involving multiple stakeholders.
In today’s U.S. economy, SRI assets represent over USD$8 trillion. What could SRI mean to you?