Socially Responsible Investing (SRI for short, or Ethical investing) is an investment area that can often be overlooked by advisers.
There is a lack of awareness about what this really means and when advisers talk to clients about SRI investing, the way the question is framed can be crucial. Simply asking if someone would like to invest ethically is akin to asking whether someone would like to visit somewhere they have never been before, you will get a whole range of answers based on their pre-conceptions of that place, some of which may be quite far off the mark!
I tend to work with my clients by asking questions that provide some context, for example, ‘how do you feel about investing in areas that can be seen as controversial like tobacco or Arms?’ Or ‘Would you be interested in investing in companies that actively seek to improve their sustainability and work with professionals to be more efficient, safer and more resilient?’
The answers to questions of this nature can highlight when a client may require more information on SRI. There are three types of ethical investment, Negative Screening, Positive Screening, and Engagement. Negative screening is the more traditional approach where certain industries are simply excluded from a portfolio due to the negative impact that industry has on the environment and / or social wellbeing e.g. Tobacco and Pornography.
Positive Screening is actively seeking out companies that work in areas that are socially responsible, for example, companies that are improving the efficiency of their energy output, or improving sanitation and access to clean water, companies that are creating electricity from renewable sources or are involved in waste recycling and the list goes on.
Engagement is where an Investment Manager will seek out companies that are looking to improve their Social Responsibility. These companies will accept investment but the Investment Manager sits on the board and has some level of control and governance over the Environmental and Social policies the company implements and if they do not comply, investment is withdrawn.
There are some perceptions that investing ethically can mean narrowing investment choice and sacrificing performance for your morals. As detailed above, the various ways that SRI can work mean that this is not the case, there is a broad spectrum on offer and many companies have seen great success, which can result in above average return for investors.
I enjoy talking to my clients about investing ethically and am always surprised by the different views that people have, from complete indifference ranging through to wanting to sit on the company board themselves! I look forward to developing Thompson & Richardson’s SRI proposition to provide more information for clients and greater choice in terms of the SRI investments we offer in this growing area.