Putting An End To Misconceptions About Sustainable & Responsible Investment (SRI)
Sustainable & Responsible Investment (known as SRI) is the application of the sustainable development concept to financial investments.
The SRI financial products offering aims to go beyond financial performance by providing social and/or environmental value-added. SRI still suffers from much prejudice on the part of private investors as well as from many preconceived notions.
SRI = CSR = Sustainable Development!
Not true! What is true is that these different concepts are unfortunately often confused.
- Sustainable development is “development that meets the needs of the present, without compromising the ability of future generations to meet their own needs”.
- CSR, or Corporate Social Responsibility is the transposition of the sustainable development concept to the business world. It’s the way a company incorporates Environmental, Social and Corporate Governance (ESG) criteria into its strategy and general policy.
- SRI, or Sustainable & Responsible Investment, is the way investors integrate sustainable development and CSR into their investment choices.
SRI doesn’t have any environmental or social impact on the economy
Quite the contrary! SRI is a type of investment that, at the same time as seeking financial return, aims to generate social or environmental value-added. To reach this goal, SRI management systematically integrates ESG criteria into the appraisal and selection of companies. This ESG analysis, provided either by specialized extra-financial rating agencies or by asset management companies, enables companies to have better cognizance of their areas for improvement in terms of environmental and social criteria.
Moreover, the most conscientious management companies in their SRI approach endeavour to establish constructive dialogue with companies in all sectors so that they improve their ESG practices. To this end, asset management companies often work with their competitors who are pursuing the same objective. This way of functioning, called “shareholder engagement”, is bearing fruit since ESG practices have significantly improved in the corporate world over the last 15 years. This is therefore directly attributable to SRI funds.
There shouldn’t be any total stock in an SRI fund
That depends on the type of SRI fund! In a “Best-in-Class” fund that is general and multi-sector, the economy as a whole is financed. This means that all sectors are analysed and can be incorporated into an “SRI” portfolio. This is the case of the oil sector and of other sectors in the economy that are perceived as not being particularly responsible. If Total is currently better – or less bad – than its competitors with regard to ESG criteria then it is possible to find Total shares in an SRI fund. The aim here is to help each and every company with the lasting improvement in its ESG practices through shareholder engagement.
A thematic fund, on the other hand, focuses solely on sectors of the economy that provide solutions for environmental and social issues, sectors such as renewable energy, water and waste management, fair trade, etc. The oil sector is therefore excluded.
SRI funds do not perform well
On the contrary … Societal, economic and environmental transformations are inevitable for society. Although they challenge the profitability of some sectors, at the same time they provide new opportunities for companies that anticipate such changes. These sectors therefore constitute real investment opportunities. In addition, the approach of adding an extra-financial screening to the financial analysis ensures better knowledge and better consideration of the risks inherent to a company.
This is confirmed by the performance track record of the SRI sector over more than 10 years. The oldest SRI index, the MSCI-KLD 400, comprising the 400 North American companies with the best ratings from a social and environmental point of view, has systematically outperformed its traditional peer, the Standard & Poor’s 500 index. This proves that investing responsibly does not mean giving up financial performance.