ESG. SRI. What Does It All Mean?

ESG. SRI. What Does It All Mean?

Garnering more attention these days is ESG (environmental, social, governance) or socially responsible investing (SRI). Those who want to do good with their money look to invest in companies or strategies that are making a difference in societies across the world.

The ways of socially responsible investing have changed considerably over time. What was once “socially conscious” investing was simply excluding companies or even industries entirely related to such things as alcohol, tobacco, guns and so on. This exclusionary screening approach is still used today, however, other methods in which an ESG focus is applied have evolved.

The options are growing for investors seeking investments that promotes “good” companies over the “bad” (or better put, do not have the same positive impacts to society).

ESG strategies can fulfil the investor’s desire to invest responsibly and still hold a well-constructed and diversified portfolio. These portfolios are implemented at varying levels in an effort to address investor concerns or values.

  • ESG Consideration: Manager considers ESG alongside many other factors, but is not necessarily a key factor that ultimately leads to security selection.
  • ESG Integration: Manager fully integrates ESG/sustainability criteria in all facets of the process. Final security selection and/or portfolio construction is highly reflective of ESG factors.
  • Impact Investing: Aims to deliver societal or environmental impact alongside financial returns by actively engaging with company management to influence behaviors. This can also be referred to as active ownership and is accomplished through shareholder proxy voting.
  • Sustainable: Focus on areas of the market that reflect the green economy. Examples include strategies dedicated to wind or solar (renewable) energy, clean water resources and low carbon.

There is no one-size-fits-all definition of what responsible investing is or should be from one individual to another. Some may want more customized or specific options, while others may not even realize this is what they want.

ESG and socially responsible investing continues to be a topic of seemingly growing popularity, especially with the younger and next-generation investors. The task is finding suitable investments that meet these demands.

 

Washington Trust Bank believes that the information used in this study was obtained from reliable sources, but we do not guarantee its accuracy. Neither the information nor any opinion expressed constitutes a solicitation for business or a recommendation of the purchase or sale of securities or commodities.

 

About The Author

Derrick is a Portfolio Manager of Manager Selection and Due Diligence for Washington Trust Bank’s Wealth Management & Advisory Services. He is responsible for all external investment manager analysis, selection, monitoring and retention.