Over the past decade Sustainable and Responsible investing (SRI) has risen sharply. Regarded early on as a fringe hobby for people with strong moral compasses on matters such as human rights and the environment, sustainable investing has now hit the main stream.
SRI is now a trillion dollar industry and all the big players on Wall Street are beginning to focus heavily on the market and offering their clients ‘sustainable package options’.
Defining Sustainable and Responsible Investing
Sustainable and Responsible Investing is a difficult concept to pin down as it’s so broad. It can be defined as investing in a company or cooperation that takes into consideration sustainable issues such as the environment and social impact and has long-term strategies implemented to reduce any negative impact it may have.
However, it’s slightly more complicated than that as different investors wish to avoid different things.
For example, some clients are anxious to avoid companies that pollute the environment whilst other investors may be keen to avoid companies that sell tobacco, fossil fuels or arms. Others may want to focus on renewable energy investments.
For the more extreme investors it may mean only investing in companies who are at the forefront of sustainable issues.
Sustainable and responsible investing is now one of the most popular options for investors. Such is the strength of the industry that many fund managers strongly encourage large companies to become more sustainable and environmentally friendly.
The once fringe sector is now very much at the forefront with one in three investment organisations in Europe now offering sustainable investing options.
In the USA, there are now reportedly more than 200 sustainable investing mutual funds available to investors. This sharp rise has far outperformed the rise of conventional funds.
How does SRI perform?
There is wide evidence to support the fact that in many cases sustainable investing portfolios have been outperforming standard portfolios.
However, there is some serious debate over whether the impressive returns of the sustainable investing portfolios can be attributed to actual sustainable business practices, or whether it simply reflects the notion that ‘sustainable’ businesses generally tend to be larger more high-tech enterprises.
Larry Chen, a derivative analyst at UBS Warburg stresses the point that sustainable investing has not been proven to be either positive or negative yet.
‘While anecdotal evidence exists to suggest that socially responsible investing generates superior returns, most attempts to directly prove the “social effect” have so far been inconclusive,’ says Chen.
Who can invest in SRI and where?
Absolutely anyone is eligible to invest in sustainable companies. You get normal retail individuals, high net-worth individuals and a whole host of institutions such as banks, hospitals, schools and venture capitalists.
In the UK, US, Australia and further afield you can either approach your individual broker or use certain online broker companies such as iDealing, Interactive Brokers and IG.
All are good options and simply require you to sign up before being assigned an online account with freedom to choose your chosen sustainable investing strategy.
Our staff writers come from all over the world, but one thing unites them - their passion for sustainability.