Top 10 Tips on Socially Responsible Investing

Tip 1- The SRI Concept is simple/ Don’t be put off by Jargon

The investment industry has a tendency to use complex and confusing terminology which baffles the public. Descriptions such as Green, Ethical, Sustainable and SRI have all been used to describe this area. Don’t be afraid, however, despite the different names, they all follow the same basic concept.

SRI simply means investments that, in some way, make a positive contribution to the physical or social environment, upon which we depend for the future sustainability of our world.

Tip 2 -Don’t believe the Myth that SRI Investing sacrifices financial performance

This is an outdated myth perpetuated by people who simply don’t understand the SRI industry today. Rather than be a drag on performance there is plenty of evidence to suggest that SRI investing is more financially sustainable than a mainstream investment.

SRI fund managers are not solely concerned with traditional financial analysis. They also take into account the effects of Environmental, Social, and Governance factors (ESG). This is important because companies who look after their environmental footprint and social impact as well as their ethical business practice have a significantly greater chance of delivering sustainable returns. This is particularly true in the current economy of resource constraints and increasing regulation.

The importance of these non-financial performance indicators is reflected in the growing number of companies that now are exposed to ESG analysis. In their latest report, FTSE have stated that over 30% of all worldwide companies shown in their global index have ESG ratings.

Looking at it from the other side, if a company abuses its ESG it can have a negative impact on performance. For example, BP has not regained the confidence of the market since the Deepwater Horizon disaster of 2010. Many analysts do not consider BP to be the once safe, blue-chip stock it used to be.

Tip 3 Ask your Adviser if your investments can make a positive difference

It is easy to be cynical about whether your investment can make a social or environmental difference or not. However, your pensions and investment funds are part of a private sector that is helping to drive big social and environmental policy changes that will benefit everyone on the planet in the years to come.

For example, child mortality (according to the World Bank), fell by 38% between 1990 and 2012. On an environmental level, the United Nations Environmental Programme reported a six-fold increase in renewable power between 2004 and 2012.

Even more exciting is the fact that, with SRI, you can also see specific changes relating to the actual funds you are investing in. Many fund managers, now invest in certain positive themes, such as clean energy, environmental sustainability, health and welfare. You can see the companies they are investing in as well as hearing of the positive changes they are making.

Remember, the SRI fund managers you invest in are also responsible for engaging with certain industries to drive positive change.

Take the recent case of the terrible fire and collapse of the Rana Plaza in Bangladesh where over a 1000 garment workers lost their lives. In response, socially aware investment managers and stakeholders have been instrumental in persuading major retailers and brands to sign a legally binding accord designed to transform the working conditions and safety procedures in the clothing supply chain.

Tip 4 – Don’t be afraid to say what’s important to you

We are all affected by own experiences and so you may have a particular social, ethical, or environmental issue that is particularly pertinent to you. Don’t be afraid to mention this to your investment adviser. There is an ever-growing market of funds and products that can meet your individual needs and preferences.

Tip 5 -Ask to see what’s in your Investment

The stock market collapse in 2008 revealed the danger of having a lack of transparency as to where investors’ money was being invested. Now, more than ever, investors are concerned about where money is going and how it is being used.

For too long, investors have just seen the stock market as a homogenous block whilst in reality; there is a huge variation in the activity and behaviour of companies making up that market. It is, therefore, logical to see what’s under the bonnet of your fund to satisfy yourself that it will deliver both the performance and the SRI impact that you want and expect.

SRI fund managers and advisers are happy to discuss openly what’s in their recommended funds. It is in their interest to show you that their funds deliver, both in terms of financial returns and social impact.

Tip 6 – Don’t be afraid, SRI is not the brave new world. It is now a mature industry

SRI is no longer the new kid on the block. The value of SRI funds under management in the UK has increased from £312m to around £10bn over the last 20 years, excluding the large increase in SRI exposure within the institutional sector. Many large company pension plans now have a significant SRI mandate.

Socially responsible investing will continue to mature reflecting our ever-increasing demand for a more sustainable lifestyle, whether this is healthier food, more recycling or saving energy.

Tip 7 – You can now have an SRI investment portfolio

Sensible investors understand that risk needs to be considered in a wider context when planning an investment portfolio. In particular, research suggests that it is prudent to include a spread of asset class and investment style when building a well-balanced portfolio.

In the past, the SRI sector was criticised because it did not offer such opportunities for diversification, but this is no longer accurate. SRI filtered funds now include a variety of different asset classes including stocks, bonds and property. Today, ethical investors can invest in larger, more established, sustainable organisations, as well as those emerging companies who make a more direct contribution to a more sustainable future.

Tip 8 -You can build trust with this type of investment

Following the financial meltdown in 2008 investor confidence was at an all-time low. Investors of all types could see a strong correlation between irresponsible financial management and huge stock market falls.

Just as financial mismanagement and poor transparency created this lack of trust, so more responsible, and open activity will have the opposite effect.

Investor trust is integral to the SRI industry. As a result, SRI fund managers undertake an in-depth research process which includes analysis of environmental, social, and governance factors. Evidence is increasingly showing that when this is ESG Analysis combined with financial analysis, a shareholding is more likely to achieve long-term, sustained performance.

Tip 9 -Don’t feel guilty about dipping your toe in the water and starting small

It is still very rare for existing SRI investors to place all of their wealth in funds within this space. This is partly because this area is still developing and can’t currently satisfy every investment requirement.

For that reason, you should not feel guilty if you only invest a proportion of your money in this area.

The real challenge for the SRI industry is to move from the margins to the mainstream. As it does so, the increase in funds will allow the sector to have an even greater impact on the social and environmental challenges that face us. As more traditional investors like you move more of their funds into the SRI sector, the pace of these changes will accelerate, benefiting everyone.

Tip 10 – With this type of investment you can be part of a real movement for change

Unlike more traditional investment approaches, SRI allows you to be part of an active movement pushing for long-term positive change. This is a movement that has journeyed from the margins to the mainstream. The demand for socially and environmentally responsible investment has never been greater. Indications of the value to be gained from supporting a sustainable economy can be clearly seen in the way governments around the world are framing their economic policies.

Be part of this exciting movement.


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Top 10 Tips on Socially Responsible Investing

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