Socially Responsible Investing
Socially responsible investing is thought to have started with the Religious Society of Friends (Quakers) in 1758 when the Quaker Philadelphia Yearly Meeting prohibited members from participating in buying or selling humans as part of the slave trade. One of the early adopters was Methodist founder John Wesley, whose sermon “The Use of Money” outlined his basic tenets of social investing: not to harm your neighbor through your business practices and to avoid industries like tanning and chemical production, which can harm the health of workers.
In general, SRI investors encourage corporate practices that are morally grounded and promote environmental stewardship, consumer protection, human rights, and racial or gender diversity. For example, some socially responsible investors avoid investing in businesses perceived to have negative social effects such as alcohol, tobacco, gambling, pornography, weapons, and fossil fuel production. Essentially, for socially responsible investors morality trumps the bottom line.
Sustainable Investing
As a blanket investment term, sustainability has become a catch-all for a company’s efforts to “do better” or “do good.” This investment approach is best defined by the three pillars of sustainability: economic growth, environmental protection, and social progress, also referred to as “people, planet, and profits.” In a nutshell, sustainable investing directs capital to companies fighting climate risk and environmental destruction, while promoting corporate responsibility. Sustainable investors, ranging from global institutions to individuals, utilize a combination of traditional investment approaches together with ESG insights to pursue their investment goals. Sustainable investing seeks to find companies that are positioned to grow while also doing good and pioneering better business practices. This approach blends a focus on return with a desire to do good.
Green Investing
Green investing, sometimes also known as eco-investing, is a practice where investors use their investment dollars to back businesses and other enterprises that are eco-friendly. These may be companies that implement green policies in their day-to-day operation or firms that are specifically committed to implementing conservation, developing renewable energy sources, educating the public about green initiatives, and more. Green investing is a subset of a wider investment strategy called socially responsible investing, or SRI. As its name suggests, SRI is a tactic where investors allocate their assets to support endeavors that line up with their personal belief systems, particularly in areas like sustainability and social justice. All of these practices are also sometimes known as impact investing, in that they’re investments with goals including making some sort of external impact on global or social issues.
ESG
In contrast, ESG focuses on three specific, foundational pillars that are crucial to today’s corporate management and investors alike. Environmental issues can include pollution, climate risk, exposure to extreme weather, carbon management, and use of scarce resources. Social issues can include product safety, human rights, worker safety, customer data protection, and diversity and inclusion. Governance issues can include factors such as accounting standards compliance, succession planning, anti-competitive behavior, and a strong ESG management process. ESG data and metrics are used to gain insights into the success and value of a company’s performance and policies in order to mitigate risk and identify superior risk-adjusted returns. Essentially, the focus of ESG investing is on increasing the bottom line through investments in responsible companies that are being well managed
Disclosure:
Socially Responsible Investing (SRI) / Environmental Social Governance (ESG) investing has certain risks based on the fact that the criteria excludes securities of certain issuers for non-financial reasons and, therefore, investors may forgo some market opportunities and the universe of investments available will be smaller.
This material was created for educational and informational purposes only and is not intended as ERISA, tax, legal or investment advice. If you are seeking investment advice specific to your needs, such advice services must be obtained on your own separate from this educational material.
