With more and more people realising the importance of caring for the planet on which we live, it’s not surprising that many are looking for investments that make a positive impact on our environment, our communities, and our children’s future as a whole.
Investor concerns now range from the environmental implications of a company’s activities, to how it treats its workforce and the communities in which it operates, and to how ethically the company is governed.
These concerns are usually wrapped up under the description of Socially Responsible Investing (SRI), or Environmental, Social and Governance (ESG). A number of managers offer specific SRI funds.
There is a wide range of SRI funds, and they use different methods for weeding out undesirable investments or identifying desirable ones. For example, some managers use a negative screen to exclude things like alcohol, tobacco, gambling or uranium mining. These funds are sometimes described as ‘light green’. Another form of ‘light green’ fund is those that apply a ‘best of class’ approach. Such a fund might still invest in mining companies, but only the ones with the best environmental record.
Other funds apply positive screens, specifically looking for companies that are trying to make the world a better place as well as generate a return for shareholders. These include renewable energy companies, cosmetics companies that don’t use animal testing, or property companies that specialise in sustainable development. Funds that operate a positive screen are considered ‘dark green’.
Green isn’t the only colour when it comes to socially responsible investing. Non-environmental concerns are important to many investors who want to avoid any involvement in companies associated with alcohol, tobacco, gambling or armaments. Corporate governance and social equity issues are also a factor for some investors.