Within the socially responsible investing (SRI) sector, there are a range of approaches employed by investment managers. However, they generally consider a company’s environmental, social and governance (ESG) credentials when researching, analysing, selecting and monitoring investments.
Socially responsible investing is sometimes known as sustainable, green or impact investing. You may also see the terms ethical investing, SRI and ESG used interchangeably.
Positive and negative screening
As part of the investment research, analysis and selection process, investment managers will screen each investment for its positive or negative attributes, or both. This means excluding companies or sectors that don’t meet the investors’ values.
This could include:
- Businesses that are environmentally harmful, such as coal mines, companies that produce toxic waste or have poor land and water management practices.
- Businesses that cause social harm, such as tobacco companies, weapons producers or companies that use slave labour in their supply chains.
- Companies with corrupt governance records or poor diversity outcomes.
It means actively seeking companies with strong social, environmental or governance records.
This could include businesses that:
- Produce renewable energy or manufacture products to create renewables, like solar panels or wind turbines.
- Provide social benefits, such as medical products or education.
- Have strong governance, such as companies with good diversity outcomes, who actively engage the communities they work in.
Investment managers will screen each investment for its positive or negative attributes – or both. While socially responsible investing is increasing in popularity, it’s not a new concept. From the 18th century on wards, many investors have been keen to align their wealth with their values.