An Introduction to Sustainable and Responsible Investing

by ndewey 14. November 2012 00:35

Sustainable and responsible investing (SRI) is a fairly recent phenomenon that is growing in popularity. This approach to investing now encompasses an estimated 12% of the total investment in the U.S. market place. However, many in the public do not yet kow what SRi is and why it is important. The forum for Sustainable and responsible Investment provides a brief summary on the subject.

What is it?

SRI recognizes that corporate responsibility and societal concerns are valid parts of investment decisions considering both the needs for returns as well as an investment's impact on society. This encourages corporations to improve thier environmental, social and governance practices. Those who participate in SRI can be individuals, institutions, universities, foundations, pension funds and anyone else who wishes to invest.

What is the approach?

SRI uses a screening process to evaluate investment worthiness. Both positive and negative screens are used. Positive screens search for companies that are strong performers who already focus on corporate social responsibility. Negative screens aim to eliminate companies that are known to have poor environmental, employment and governance practices. In general, companies on the "buy" list have good employee relations, excellent environmental practices, safe and useful products, and respect human rights around the world.

Are there other approaches?

Shareholder advocacy can be used to get companies to adopt better policies. With this, sustainable and responsible investors take an active role as owners by dialoging with the companies on social and environmental issues or filing resolutions on topics of interest. These resolutions are then presented to all owners of the corporation for a vote. This puts pressure on the company's management to exercise good corporate citizenship and improve policies.

Community investing is another approach. It directs capital away from corporate America and brings it to communities that are underserved by the traditional financial services institutions. Community investing makes it possible for local organizations to provide low income individuals, small businesses and community services with the capital they need to operate. This is also the fastest growing area of SRI.

Additional information about SRI can be found on The Forum for Sustainable and Responsible Investment's website.

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