The emphasis for socially responsible investing is changing as the market becomes more established, says Emily Bannister, director of research at Federal Street Advisors in Boston.
When socially responsible investing (SRI) -- now often referred to as sustainable investing -- first broke onto the financial scene, it usually meant avoiding investing in companies that had a negative impact on the environment or the community. Now it also means supporting those companies that have good governance and a positive impact on the world around them, Bannister says.
The trend has been especially evident in the last few years as SRI investing grew to $3.74 trillion in 2012 from about $600 billion in 1995. By 2012, one out of every $9 invested was put into some form of socially responsible investments, according to the US SIF Foundation, the Forum for Sustainable and Responsible Investment.
Investors want to do more than just avoid sin stocks – they want to create change and have a positive social impact, Federal Street Advisors says.
“Advisors should have discussions with their clients to determine what they want to accomplish through their investments and what level of involvement in trying to create change is comfortable for them,” Bannister says.
Money managers at Federal Street look at the environmental and social impact of a company and at the governance of the company when making investments, she says. Investors are becoming more involved in voting on corporate issues and demanding information about sustainable operations from the companies.
As investors demand more accountability, companies are responding by making changes in operations, and in wages and working conditions for employees, she adds. This makes more investing options available.
Enough companies and industries are now responding to investor pressure for sustainable operations so that a portfolio that is diversified and yet socially responsible can be assembled, Bannister says. At the same time, investors do not have to sacrifice returns to invest in companies that operate sustainably and treat employees fairly.
Unsustainable operations and poor treatment of employees can lead to lawsuits and high employee turnover, which negatively affects the company’s bottom line, she says.