Socially Responsible Investment (“SRI”) is a form of investment that integrates environmental, social and governance (“ESG”) criteria into analysis processes and investment decisions, in addition to traditional financial criteria.
SRI comprises two major approaches with different underlying motivations and philosophies
Socially responsible funds
These funds give priority to the most advanced companies in terms of environmental, social and governance risk mitigation.
This positive approach pursues two objectives:
- Contributing to changes in corporate behaviors,
- Generating a superior risk-adjusted investment performance over the medium to long term.
Example: best-in-class funds, thematic funds
Ethical funds
For religious or activist reasons, these funds exclude from their investment universe companies involved in controversial sectors such as armament, gambling, tobacco and alcohol for example.
Example: ethical exclusion funds
Investors and fund managers can also mix these two approaches - positive and negative - in combined investment strategies.
SRI can be implemented in different manners
- Investing or divesting according to ESG criteria
- Engaging with companies on ESG issues or exercising shareholders rights. This can be done,, either on an individual or a collective basis, by engaging a dialogue with companies or submitting voting resolutions, in order to influence corporate ESG strategies and practices
SRI is going mainstream
SRI was originally confined to specialist funds, but it is now progressively being integrated into mainstream investment practices.
The Principles for Responsible Investment (“PRI”) initiative, launched in 2006 under the aegis of the United Nations, now count more than 800 signatories representing over US$22 trillion in assets under management.
PRI signatories commit to respect 6 principles based on the belief that:
"As institutional investors, we have a duty to act in the best long-term interests of our beneficiaries. In this fiduciary role, we believe that environmental, social, and corporate governance (ESG) issues can affect the performance of investment portfolios (to varying degrees across companies, sectors, regions, asset classes and through time). We also recognize that applying these Principles may better align investors with broader objectives of society."
Vigeo has been a PRI signatory since their inception. Many of Vigeo’s clients and partners are associated to this initiative.
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