SRI...ESG, what's it all mean?
SRI stands for Sustainable, Responsible, Impact Investing and it's an investment strategy that makes a conscious effort to consider how corporations are having either a positive or negative impact on people, communities and our natural environment.
ESG stands for Environmental, Social and Governance and is a methodology that embraces sustainability factors as a means of helping to identify companies with superior business models and/or business models that may have less risk because of their practices.
Will SRI affect my investment performance?
An ever-growing body of research suggests a strong association between responsible business management and positive financial performance. For example, Morningstar research found that the distribution of star ratings among sustainable investing funds skews in a positive direction, suggesting better risk-adjusted performance than their peers.
Researchers at the University of Oxford analyzed 200 studies, reports, and articles on sustainability. Based on their research, they found that on a firm level:
- 90% of the studies showed that sound sustainability standards lower the cost of capital in companies.
- 88% of the research showed that solid ESG practices result in better operational performance.
- 80% of the studies showed that good sustainability practices positively influence stock prices.
Lastly, a Morgan Stanley study of US-domiciled mutual funds and Separately Managed Accounts (SMAs) concluded that sustainable investments usually met and often exceeded the performance of comparable traditional investments, both on an absolute and also risk-adjusted basis.
Is anyone else using SRI?
While it’s been widely believed that millennials and women have a certain reputation for being most interested in investments that also do good for the world, a recent survey found that overall 72 percent of the United States population expressed at least a moderate interest in sustainable investing. According to theUS SIF Foundation, as of year-end 2017, more than one out of every four dollars under professional management was invested according to SRI strategies.
Does SRI really make a difference?
As of November 2018, 78% of the companies in the S & P 500 index have corporate sustainability policies or issue corporate sustainability reports. This is a huge change from the 1990s when these reports started to be issued. Shareholder advocacy and engagement, resolutions and proxy voting, all can lead to constructive dialogue with a company to improve its ESG practices.
