Socially responsible investing (SRI) is an investing strategy factoring environmental, social, and corporate governance criteria (ESG) into investment decisions to produce long-term competitive fiscal returns along with positive social impacts. There are many approaches to SRI and also many names. Some include, “green investing,” “impact investing,” “sustainable investing,” “ESG investing,”, “mission investing,” and others.
Both individuals and institutions engage in SRI strategies – including corporations, nonprofits, universities and colleges, hospitals, public and private state pension funds, but also average investors. SRI is a growing field that experienced a growth rate of over 22 percent from 2010 to 2012, according to the 2012 Report on Sustainable and Responsible Investing Trends in the United States.
There are several specific approaches to socially responsible investing. The most often used approach involves “screening” parts of the portfolio (or the entire portfolio) for companies and investments that either align or do not align with an investors’ values. For instance, many universities now negatively screen for companies producing tobacco products. Indeed, UVM no longer invests with tobacco companies. It’s also possible to use positive screens. For instance, many investors are committed to the growth of renewable energy and use a screen to search for investments in the renewable energy industry.
Another SRI approach is community investing. This involves financing projects or institutions that are underserved or financially unstable. An investor can target a local community or an international one. A type of community investing popularized by Nobel Peace Prize winner Muhammad Unus is microlending. Through microlending, investors can use their money to support developing communities around the world. Locally investing in Vermont’s economy is also community investing.
Shareholder activism involves proxy-voting and filing shareholder resolutions. Investors have the opportunity to craft resolutions based on issues within the companies in which they hold shares. The resolutions are then sent to all other shareholders to be voted upon. UVM currently votes on shareholder resolutions connected to efforts to slow climate change. For instance, many companies are currently receiving pressure to disclose information on carbon footprints and UVM votes in favor of those disclosures. Shareholder advocacy can be a powerful tool.
Lastly, divestment is the act of exiting or dropping a company from an investor’s portfolio. This strategy gained widespread attention during apartheid in South Africa. It has gained renewed attention recently in connection with the Fossil Free campaign from the activist group 350.org.