What are Socially Responsible Investments?

SRI can be defined as ‘any investment that takes significant account of social, ethical, environmental or governance issues’ no matter what asset type or investment vehicle it falls within. In the retail investment market ‘SRI’ is often used interchangeably with the term ‘ethical investment’, although the latter is more appropriate for fund options which focus significant attention on ethical issues.

Interest in SRI is growing as matters of this kind are increasingly viewed as important both to business and to our everyday lives. A number of them are also viewed as increasingly likely to impact on investment returns over the coming years.

There are a range of approaches that can be taken to investing, with different funds operating in different ways.
The main approaches, which can be combined in many ways, are outlined below.

Responsible Engagement (or ‘engagement’) involves using investment ownership to encourage progress on environmental, social or governance (ESG) issues where there is a business case for encouraging change.
Engagement involves using dialogue, voting and (or) responsible shareholder activism to encourage positive change and to help reduce ESG risk. Such activity relates to assets that are already held – rather than stock selection decisions.
Engagement can be integrated across a fund manager’s entire investment portfolio (or particular asset types e.g. equities) – or it may only apply to a specific fund alongside other SRI approaches, such as ethical screening or a thematic investment strategy.

Thematic investment and positive screening strategies both involve directing investment towards companies (or other organisations) that meet a fund’s ‘positive’ SRI objectives. Such a fund may set out the themes or business attributes it considers to be positive, beneficial or desirable – such as helping us to make the necessary shift towards more sustainable lifestyles – and invest accordingly.

Impact on investment decisions can vary significantly. Some funds focus on a single sector or issue, although most are broad based – focusing on a range of longer term challenges and opportunities that face business. Some invest in a narrow range of industries; others invest widely in companies that achieve certain standards. Themed funds such as Environmental funds and Sustainability funds generally have positive approaches of this kind – although some also have areas that they avoid. Screened ethical options often apply this approach to some areas.

Avoidance or ‘negative screening’. Avoiding companies (or other investments) that are involved in activities that a fund manager has defined as ‘unacceptable’ or ‘unethical’ is a major feature of ethically screened funds. Negatively screened ethical funds typically have a list of business practices that are considered to be unacceptable and set exclusion criteria to reflect these views. Negative screens and other exclusion criteria often relate to values based ethical issues but may also relate to environmental, social or governance issues.

The impact on investment strategy varies from fund to fund. Some funds exclude companies with only minor involvement in excluded activities whereas others are less strict and balance the positive benefits of companies against their negative attributes.

United Nations Sustainable Development Goals

On the 1st Jan 2016 the United Nations ushered in an ambitious set of goals to banish a whole host of social ills by 2030. “The seventeen Sustainable Development Goals (SDGs) are our shared vision of humanity and a social contract between the world’s leaders and the people,” UN Secretary-General Ban Ki-moon said of the 2030 Agenda for Sustainable Development.

“They are a to-do list for people and planet, and a blueprint for success,” he added of the 17 goals and 169 targets to wipe out poverty, fight inequality and tackle climate change over the next 15 years.

”Turning this vision into reality is primarily the responsibility of countries, but it will also require new partnerships and international solidarity.

Everyone has a stake and everyone has a contribution to make. Reviews of progress will need to be undertaken regularly in each country, involving civil society, business and representatives of various interest groups.”

Cheltenham IFA

Contact Us

If you are interested in knowing more about Ethical or Socially Responsible Investments, please contact the office on 01242 516784 or complete our enquiry form and a member of our team will contact you to arrange a convenient time and place to meet.