Socially Responsible Investing - What's the Difference?
Before the pandemic hit, we were getting ready to write this newsletter spelling out the different ways in which one can consider conscious investing. The conversation about a “green revolution” in the investment world was lively at the time and is coming back again.
Although socially responsible investing has been available and in place for many years, people are interested in it now more than ever as a viable investment option.
“The COVID-19 pandemic has exposed some very real health, social, financial and political inequities around the world. From the quiet of quarantine to the passionate protests against police brutality and racism, focusing on these struggles and injustices has provided us an opportunity to gain greater clarity about the values that are most important to each of us and our families. Strangely, despite the division emphasized by many media reports, for so many of us, the early challenges of this decade have resulted in greater resolve to work together to do better — for everyone.” (State Street Global Advisors)
Alyce Lomax and John Rotonti of The Motley Fool describe the difference between three of the main modalities, Socially Responsible Investing (SRI), Environmental, Social and Governance (ESG) and Conscious Capitalism here:
ESG: Environmental, Social and Governance
"The letters 'ESG' stand for environmental, social, and governance. Investors who employ this strategy examine criteria within these three categories to analyze stocks. Combining the ESG lens with more traditional stock analysis techniques is known as ESG integration. Anyone can join the swelling ranks of ESG investors by simply learning more and then using this framework in making future investing decisions."
ESG investors recognize the advantages that may be associated with investing in companies positioned to benefit from the global shift to a sustainable economy.
SRI: Socially Responsible Investments
"SRI generally uses exclusionary screens, or filters, that investors can use to exclude certain companies and industries that don't meet their particular value criteria. The SRI investor sets their screen to make an investment decision by tailoring it to their own values. For example, many SRI investors screen out tobacco, alcohol, and weapons stocks, leaving most other companies and industries eligible to select for further analysis. Others take issue with lobbying done by certain companies, and keep them out of their consideration pool for that reason. SRI investors might also screen out all companies in a particular industry except those considered 'best in class.' A best-in-class investor might screen out all fossil fuel companies except those that outperform their peers in the areas of sustainability, employee treatment, and corporate governance."
"Conscious capitalism is another buzzword you've probably heard. It's a business management strategy that emphasizes aligning the business with stakeholders for shared success. A company that fits within that realm not only seeks profits to benefit shareholders, but also serves other stakeholders like employees, the environment, suppliers, customers, and communities. Serving all stakeholders is thought to strengthen a business and generate long-term profitability. The focus on creating value for stakeholders puts conscious capitalism in the same philosophical category as SRI or ESG, but it's better understood as something that should be embodied by an executive. Investors can look to conscious capitalism as a way to think about management of the companies they own, but it's not an investing discipline per se.”
If you’re interested in finding out more about SRI or ESG for your investment plan, please let us know. We’re happy to explore these options with you.