Does it come as a surprise that investment strategy and social responsibility can go hand-in-hand?
With modern investing methodologies offered by Signet, it’s entirely possible to manage your wealth, while preserving your positive impact on society.
Socially responsible investing (also known as sustainable, responsible and impact investing) is the latest methodology investors and wealth managers are using to contribute their funds to meaningful causes. From green technology to political activism, there is immense opportunity for social advancement while still making gains on investments.
Over 1 out of every 4 dollars, or a grand total of 12 trillion dollars, being professionally managed in the US today can be found in socially responsible investments. So what does this look like in practice?
Ways to Invest
There are different types of SRI investing that achieve different results, from investing directly in positive changes to removing funding from those changes seen as negatively impactful. Here are just a few SRI-driven methods that many wealth managers look at when considering SRI investments.
Negative Screening and Divestment
One way that investors consider where to contribute is by screening for negative attributes in the potential investment. Known as “sin stocks”, many industries or support for certain industries by an investment are removed from the running when wealth and asset managers focused on SRI investing. These sin stocks are mostly comprised of investments in the tobacco industry, gambling industry, adult entertainment, nuclear power, and weapons, although the specific causes of importance could fall outside of these categories depending on the investor.
Divestment represents a similar but slightly different methodology in which previous holdings are removed or eliminated to pursue more socially conscious investments. In these ways, SRI investing can be just as much about what NOT to invest in as it is about what TO invest in.
One way to invest in socially conscious ways is to use an investment to drive responsible behaviors. Wealth managers and individual investors can take note of an investment’s current behavior and drive change using the capital leverage they now hold, which is an effective way of encouraging high-level behavior changes for entire industries, potentially. In doing so, investors aim to have better possibility to maximize returns as more responsible behavior can drive profits.
Positive investment is the newest form of SRI-driven behavior that focuses on businesses and industries that are making an actively positive impact on society. Green technology has become the most common way to push to enact that change, with this arena growing by multiple percentage points of investments every year. Positive investment can also cover other areas of importance such as social justice or equal opportunity employment, allowing investors to maximize and diversify their portfolios with a broad range of causes.
Top Selling Points for SRI Investing
There is a broad range of ways that an individual or organization can practice SRI investing. The key to SRI investment strategy lies in large part in what industries or concepts to avoid, also called negative screening, although some of the most popular methods fund positive changes to society directly.
Climate Change Mitigation
This is probably the first method of sustainable investment that comes to mind when you consider SRI investing. Green technology – think solar panels or electricity to replace carbon emissions – has exploded in popularity in the past few decades, in large part thanks to SRI investment.
Alongside green technology comes accountability for negative impacts to the environment. Companies that could once engage in unsustainable practices are now taken to task by wealth management firms that focus on SRI investing.
Opposition to Big Tobacco
Traditionally, investment in the tobacco industry provided safe returns that were easy to enjoy if the investor or wealth manager in question turned a blind eye to the negative consequences.
This no longer holds up as more financial risk ensues from declining tobacco popularity, and many individuals and organizations alike have developed a strong preference toward companies that have a less favorable view of the tobacco industry. By engaging in SRI investing, there is a conscious effort in place by wealth managers to divest from the grip that the tobacco industry can hold on major institutions and on public policy, and this mission clearly speaks to the socially conscious investor.
Between 2014 and 2016, the emphasis on community investing in SRI investment strategy nearly doubled. Community investments are funneled through banking institutions that deal with underserved populations more heavily than major institutions.
Community SRI investing can be used to fund resources that benefit community members. This can include capital for small businesses, affordable housing units, grocery stores, and more resources that provide positive changes to specific communities.
With the emphasis on social issues that benefit society, educational institutions have become one of the top investments in SRI. Equal opportunity employment and diversity are of utmost importance to educational institutions, and many take investors to task on their own investment habits that do not benefit, or even negatively impact, the causes that are most meaningful to them.
Top SRI Investors
The most recent report on SRI investment strategy performed by the Forum for Sustainable and Responsible Investment found that the most SRI investors tend to be individuals, moving their savings and retirement plans into mutual funds that meet environmental, community, and other societal and corporate governance (ESG) standards.
Local credit unions and community-oriented banks
Many local financial institutions have a specific focus on improving the direct communities they serve, which is well under the umbrella of SRI investment. This option seeks the security of a banking institution to pursue financial returns as well as a nuanced understanding of the regional population’s needs, making it a viable option for many looking to invest sustainably and hence one of the most common investments in the SRI world.
This one may come as a surprise, but hospitals are one of the most common SRI investors in the game. Under ESG standards, their typical refusal to contribute to companies bolstered by the tobacco industry makes their high rate of investment a clear-cut SRI-driven strategy.
Many foundations already have their own causes that are important to them, so it is a “no-brainer” that they would be a top participant in SRI investments. Their social impact investments often work with their personal missions.
Encouraging companies and industries to meet ethical guidelines is a major way that religious institutions play into the investment realm. By participating in social activism, they are a top investor when it comes to SRI behavior.
What’s the Bottom Line?
Investors have grown tired in recent decades of limiting their portfolios to the more uncreative ways of growing their wealth and diversifying their assets, and sustainable, responsible, and impact investing has proven to be a strategy to this growing disillusionment with investment. Corporate values are more important now than ever in developing consumer loyalty and pursuing profits, making SRI investing a smart call.
How Signet Can Help
It is our mission to provide investment resources and strategies to clients and financial institutions helping them develop a greater knowledge and passion for sustainable, responsible and impact investments.
Let us help you find your mark with our experience.
The return of Environmental, social, and governance investing may be lower than if the adviser made decisions based solely on investment considerations.
No strategy assures success or protects against loss.