Investing With A Green Purpose

Wed, 2013-12-04 09:50

Socially Responsible Investing (SRI) is not a new concept, but it is one that is growing and evolving. “Over the last two years, SRI investing has grown by more than 22% to $3.74 trillion in total managed assets, suggesting that investors are investing with their heart, as well as their head,” according to an article published on earlier this year. SRI is one of several approaches that influence or govern how asset managers invest portfolios. SRI can be defined as any investment strategy that seeks to consider both financial return and social good.

SRI Screening

To be included in an SRI fund, a company is screened in various ways. A negative screen will ensure that there is no involvement in a particular sector that may be viewed as harmful or in conflict with core values, such as weapons, tobacco, and gambling. A fund manager may also use a positive screen to seek out companies that promote positive activities such as renewable energy development. A restricted screen may be used for highly diversified companies to determine what portion of the business is in a less desirable sector, relative to the rest of the company’s holdings.

Impact Investing

world in handsThe general idea behind SRI is to earn a return in a civil way through adherence to certain criteria. This approach has been refined further to include impact investing. Impact investors aim to solve social and/or environmental challenges while simultaneously generating a profit. Unlike SRI, impact investing does not include negative criteria focused on avoiding investments in "bad" or "harmful" companies. Impact investors actively seek to place capital in businesses and funds that can harness the positive power of enterprise.

Empowering Investors

Today there are more and more opportunities to invest for the greater good. Individual investors have greater access to community and grassroots efforts through crowdfunding platforms, such as Mosaic. Companies are starting to respond to employee demand for more green investing options through retirement plans. A group of Democratic lawmakers recently proposed legislation to allow federal employees and retirees to invest their retirement savings in socially responsible companies. “This legislation would allow federal employees to feel good about their investments and would encourage companies to implement socially responsible and environmentally sustainable policies and practices, “ said Rep. Jim Langevin, a sponsor of the bill.

Growing Awareness

As more screens are applied to investment options and more investors and financial professionals understand the risks of failing to examine the environmental impacts and social governance of corporations, the pressure is on corporations to address these issues. Only the fittest will survive, and the trend will ultimately benefit the greater good.

photo credit: Aproximando Ciência e Pessoas via photopin

By Amy Malloy