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by Christopher Manning
Investors have always looked for the best return on their money. In
addition, now many are also looking for socially responsible ways to
make their money count.
Since 1995, Socially Responsible Investing (SRI), also called
Sustainable Investing, has increased over 300% and continues to rise.
While the broader universe of professional assets under management
increased less than 260% during that same time, over $2 trillion has
been funneled into investments that help to sustain our environment,
all people, and the many forms of life that inhabit our world.
In simple terms, Socially Responsible Investing is an investment
process that considers the environmental, social and corporate
governance (ESG) consequences of investment – both positive and
negative – within the context of rigorous financial analysis. These
metrics, when combined, make SRI a superior investment strategy.
The three primary areas that comprise SRI are:
- Screening (Positive/Negative) – Evaluates securities based on ESG
metrics.
- Shareholder Advocacy – Promotes responsible shareholders to take
an active role as the owners of corporate America.
- Community Investing – Provides capital, credit, etc. to communities
that would otherwise lack such services.
You may be one of the many investors interested in using your
money to make a positive difference in the world, but are unsure about
SRI – what it is, how it works, and if you can see growth in your SRI
investments. Even though SRI is rapidly moving into the mainstream,
there are still many misconceptions surrounding it. To help clear up
some of the myths surrounding SRI, consider the following:
MYTH: SRI will severely limit my investment choices.
FACT: There are more than 260 different types of investment
product choices currently available, with more created each month.
SRI investors have choices that range from standard mutual funds
to exchange traded funds (ETFs), and all the way to alternative
investment strategies (i.e. hedge funds) to choose from. In
addition, with separate account management, individuals have the opportunity to create an investment strategy that reflects their
own personal values and beliefs. For example, an investor may
feel very strongly about a certain aspect of SRI – perhaps animal
rights. A personalized portfolio can be created for him or her
that will screen companies for this practice.
MYTH: SRI is an inferior investment strategy. I will have to
sacrifice return.
FACT: Absolutely not! In fact, a report by the United Nations
Environment Program and Mercer Consulting summarizing 20
academic studies fully overturned the notion that SRI leads to
diminished returns. A vast majority of the studies correlated
SRI with positive performance. (See Demystifying Responsible
Investment Performance, October 2007)
MYTH: How can I make a difference? I’m only one person.
FACT: SRI is a way to use market forces to influence behavior.
Each individual choice we make – what we buy, what we eat,
what investments we choose, etc. – casts a vote that pushes the
market in one direction or another. This has social impact. It is
this capital allocation process that allows individuals to tilt the
playing field in favor of positive societal outcomes.
Environmental degradation, social injustice and corporate
malfeasance are issues that have destroyed vast sums of capital in our
recent past and can no longer be ignored by investors. Individuals
using an SRI strategy as part of a comprehensive financial plan can
alleviate some concern over these issues – while, at the same time,
creating a better future for their families, their communities, and
their world.
After spending 15 years in financial management for the corporate
world, Christopher Manning founded Manning & Associates Financial
Services to focus on the needs of the SRI community. Since its founding,
Manning & Associates has assisted individuals and businesses with
a clearer vision of their values and how to incorporate those into a
sustainable investment plan. See his website for more information: www.
manning-financial.com.
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