Socially Conscious Investing: An Overview

Philip GagliardiJuly 7, 2016


At a recent “Lunch and Learn”, we asked our attendees for topics they would be interested in hearing about at future Lunch and Learns and/or blogs. One of the attendees asked if we could talk about socially conscious investing. This is a very interesting topic that has been gaining in popularity. Since this a very new concept to many of our clients, we thought some education would be appropriate. 

What is Socially Conscious Investing?

Many investors are more familiar with the term socially responsible investing (SRI), which is still used today and often shortened to just responsible investing. SRI is a values-based investment process that primarily uses exclusionary screening to weed out exposure to certain types of products or industries.

SRI is customizable, at least for large investors who can list products or industries they want excluded from their portfolios, and for asset managers who build portfolios that avoid those areas. A number of mutual funds use some of the most common exclusionary screens to offer a similar approach to individual investors, as well.

Over time, many SRI-oriented investors started getting more interested in other issues, including the environment, workplace policies, product safety, and the global supply chain. Investors couldn’t simply exclude these concerns from a portfolio without more extensive evaluation and analysis. These issues were frequently the topic of dialogue between responsibly minded investors and the companies they held.

Given investors’ additional concerns, responsible investing evolved to include environmental, social, and governance (ESG) issues, which led to the development of ESG analyses of companies. As a result, research firms, such as Sustainalytics—whose company-level ESG data play an important role in analyzing companies across a wide spectrum of ESG issues. Increasingly, corporate issuers are providing sustainability reporting, making it easier for research firms and investors to evaluate the ESG-related risks and opportunities associated with an investment in a company. That, along with a growing body of academic and professional research that points to the materiality of ESG factors, has more investors adopting responsible investment strategies.

Today, terms like “responsible investing,” “sustainable investing,” and “ESG” are used in similar or even interchangeable fashion. An even newer term is “impact investing,” which refers to attempts to measure the positive environmental or social outcomes of a given investment. At Morningstar, they prefer the term “sustainable investing” to best capture the essence of both its values-based orientation, as well as the view that it just makes sense to include ESG in a thorough investment analysis.

“Sustainable investing is no longer a niche activity. New generations of investors around the world are looking for ways to learn whether the investments they own reflect the best sustainability practices, because sustainability aligns with their personal values or simply because they believe it leads to better investment outcomes.” Says Joe Mansueto, Morningstar Chairman & CEO.

Interest in sustainable investing is on the rise, as many institutions and individuals seek to express their broad concerns about sustainability issues through their investments, just as they do through their purchases and in the workplace. According to the 2014 Nielsen Global Survey of Corporate Social Responsibility, more than half of consumers surveyed globally said they would be willing to pay more for products and services from companies committed to positive social and environmental impact. Two-thirds said they would prefer to work for a socially responsible company. When it comes to investing, a recent Morgan Stanley survey found 71% of respondents indicated they were interested in sustainable investing. Growing interest in sustainable investing can be seen in increased assets under management, in sustainable investment portfolios and in the number of asset managers globally that have signed the United Nations-backed Principles for Responsible Investment (PRI). Interest in sustainable investing is especially high among women and younger investors, two groups rapidly becoming influential investment decision-makers.

If you have interest or want to learn more about sustainable investing, please contact our office.  We are happy to provide some additional information or answer any of your questions.