Sustainable and Responsible Investing

What is Sustainable and Responsible Investing (SRI)?

•Goes by many names; impact investing, values investing, socially responsible investing, green investing, “gender lens” investing, fossil fuel free investing and “ESG” (investing using environmental, social, and governance factors).

•The faith community - as far back as the 18th century - was the first to focus on SRI.  SRI was first used to screen out “sin” stocks like tobacco and firearms.

•Now sustainable fund managers take into consideration environmental, social and governance criteria that can be effective ways to measure risk.

•Companies that score well on sustainability factors, such as companies that are good environmental stewards, treat their employees well, and manage their carbon risks effectively may be more profitable.

How has sustainable & responsible investing evolved?

•Originally SRI was embraced by a small group of political activists and faith based investors but it is now growing fast and broadly accepted.

•Literally hundreds of sustainable funds available in every category of investing, small company funds, low cost index funds, bond funds, international funds, ETFs, etc.

•In workplace retirement plans employers are beginning to provide staff with the choice of traditional retirement funds or low cost sustainable funds.

•Numerous boutique fund companies focus exclusively on sustainable funds and many of the biggest fund names have rolled out one or two sustainable funds.

The many differences between sustainable funds.  

•Some funds do little more than screen out “sin” stocks

•Some funds have almost as high a percentage of fossil fuel companies as traditional funds

•Some fossil fuel free funds are completely fossil fuel free but others contain oil equipment and services companies and “dirty” utilities

•Some funds usually vote their proxies with management, forcing investors to give up the impact they can have through shareholder engagement

•Some fossil fuel free funds use highly concentrated non-diversified portfolios making them particularly volatile.

•These differences can make sustainable investing harder for the individual investor to navigate.

SRI Performance

•Research increasingly shows no meaningful performance differential between traditional and SRI investment strategies.

•Independent experts give some of their highest ratings to numerous SRI mutual funds.1

•Harvard Business School & other research shows the possibility of superior  investment performance by taking sustainability factors into consideration. 2

•“Carbon risk” is increasingly being accepted as a factor that investors need to consider.  In the words of Bank of England Governor Mark Carney the carbon risk faced by “investors, including insurance companies is potentially huge.” 3

1.Fund ratings can be found on the individual fund websites or at   See for example, Parnassus Endeavor Fund at  2 Robert Eccles, Ioannou & George Serafeim, The Impact of a Corporate Culture of Sustainability on Perfromance, Harvard Business School July 2016.  3. Financial Times, Mark Carney warns investors they face "huge" climate losses, January 29, 2015