By Jeff Schlegel
Green investing. Socially-responsible investing. Sustainable investing. Different ways to say the same thing, or different ways to approach investing? Undoubtedly, some investors are confused by the nuances of the terminology, but there are clear differences, at least when it comes to SRI versus sustainable investing, said a panel on the subject at last month's Morningstar investment conference in Chicago.
To put it in simplistic terms, SRI is Negative Ned while sustainable investing is Positive Pete.
"What's changed is that SRI investing was a values-based approach seen as being about avoiding and excluding companies," said Stu Dalheim, director of Calvert Investment Management's shareholder advocacy program. "Sustainable investing is different because it's about looking on the pro-active and positive side about what companies are doing to try to find companies that will outperform their peers over the long term."
Dalheim added that companies seeking to manage issues like water shortages and climate and energy challenges--as well as those dealing responsibly with their stakeholders--positions themselves to do well. "Those are companies we believe will do better over the long term."
Ditto, said Jack Robinson, founder and chief investment officer at Winslow Management Co. "This has grown into a more positive approach," he noted. "With the advent of Whole Foods going public in the 1990s, we began to see companies that were part of the solution."
Robinson said so-called solution investing has been his company's focus in recent years, and that has expanded its universe of companies to choose from.
20% Of S&P
As for defining sustainable investing, Robinson breaks it down into three buckets. First, companies need to be profitable to be sustainable. Second, a company's environmental consciousness and strategy have a lot of financial implications, all of which are positive. Third, a company's overall social governance includes its commitment to both social responsibility and to its employees.
Robinson said roughly 100 companies within the S&P 500 have a general sustainability committee, and most of them have a chief sustainability officer. That's a quantum leap over even just a few years ago, and he posited that the trend will continue to grow because "if you're not going to get involved with sustainability as a corporation, you might not be here in a few years."
Morningstar mutual fund analyst Kathryn Young, the panel's moderator, said sustainable investing is a strategy that allows investors to simultaneously achieve market-beating, risk-adjusted returns over time while promoting positive social and environmental changes. Sustainable investing isn't entirely separate from SRI investing, she said, but is part of an evolution that focuses more on a pro-active approach versus looking at negative screens.
"It's gaining in popularity with investors and holds more promise in terms of risk management and the search for growth opportunities," she said.