What is Socially Responsible Investing?

Socially responsible investment (SRI), sometimes known as responsible investment (RI), is the integration of environmental, social and governance (ESG) factors in the selection and management of investments.  It includes:

• Screening based on exclusionary or inclusionary criteria

Exclusionary or negative screens could include such industries as tobacco, alcohol, pornography, gambling or military production, or business activities, such as environmental pollution, human rights violations, community neglect or poor employee relations.   Inclusionary or positive criteria include an active search for companies based on ESG performance, such as companies that rank at the best of their sectors on these issues.

• Portfolio analysis and management based on environmental, social and governance policies.

This technique incorporates social, sustainability and governance analysis to inform the investment decision-making process without necessarily screening out particular holdings based on pre-determined ESG choices.  Often the results of this analysis are used to underweight investments in companies with poor ESG performance, and overweight companies with positive ESG performance.

• Shareholder advocacy and corporate engagement strategies

This is the use of shareholder power to influence corporate behaviour through corporate communication, shareholder proposals, proxy voting policies and divestment.

• Community investment

This is the placement of capital into local loan or equity vehicles targeting community development or serving low-income or disadvantaged groups.  For more information on community investing, visit the website of the Canadian Community Investment Network Co-op (CCINC) at http://www.communityinvestment.ca/

• Socially responsible lending

This is a unique form of lending in which potential borrowers are subjected to social and environmental screens.

• Sustainable venture capital

This is the placement of funds-primarily private investments outside the public markets-in startup firms and small businesses that produce products or services that optimize the use of natural resources while reducing environmental impact.

SIO members believe that socially responsible investment represents a useful investment tool to enhance returns and reduce risk by incorporating social and environmental factors traditionally excluded from portfolio management.  It is also a catalyst for positive social change.

For more information

A detailed analysis of these various SRI strategies is contained in the Canadian Social Investment Review 2004 http://www.socialinvestment.ca/SIReview04.pdf