DIY Investor Magazine
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June 2017
16
AN INTRODUCTION TO SOCIAL
RESPONSIBILITY INVESTING WITH ETFS
Dominique Riedl
CEO, justETF
Can our portfolio choices do the power of good to the
environment and society as well as our personal wealth?
SRI investors believe so...
If you like the idea of aligning your investments with your
values then take a look at Socially Responsible Investing
(SRI) ETFs.
SRI indices track firms that take a positive approach
to environmental, social and corporate governance
(ESG) issues. That can mean anything from firms
producing green tech or actively managing their carbon
footprint to favouring companies that promote ethical
and sustainable business practices. SRI indices are
also likely to exclude so-called sin stocks - firms up
to their neck in the alcohol, tobacco, arms, gambling,
pornography, fossil fuel and nuclear industries, among
others.
Although SRI is a fast-growing sector, the idea of
influencing society through investing is not new.
IN GOOD COMPANY
The Quakers are often credited as the original SRI
investors after they forbade their members to profit
from the slave trade in the 18th Century. Other religious
organisations have worried about ill-gotten gains too
and regularly used the pulpit to steer their flocks away
from vice like liquor and guns.
The Anti-Apartheid movement further hastened the
emergence of SRI. Strong financial players such as
universities, cities, pension funds and faith-based
institutions screened out South African companies from
their portfolios in a bid to ratchet up political pressure on
the regime.
The SRI sector has blossomed ever since as more funds
arrived enabling investors to direct their cash towards
green themes such as clean energy or water and,
increasingly, towards broad-market SRI ETFs.
According to UBS, around $20 trillion of ESG assets
were held by major financial institutions, venture
capitalists, high net-worth individuals and small
investors in 2014. That number is only likely to
increase as many market participants believe that ESG
companies are best placed to meet the challenges of
the future - think pension funds reducing their exposure
to fossil fuel firms, for example. There’s also evidence
that millennials and women are increasingly interested
in SRI too – Morgan Stanley found that 70% of females
and 84% of millennials believed that ESG factors were
important.
SRI PERFORMANCE
But is SRI too good to be true? Do you have to
compromise your principles for performance?
A number of studies have examined this question and
concluded that SRI funds largely perform on a par with
their conventional counterparts and can beat them.
How does good triumph over bad? Firms that are
sensitive to ESG factors often operate more efficiently.
That translates into better cashflows, a lower cost of
capital and ultimately superior performance. Such
companies are also better positioned to take advantage
of the opportunities afforded by sustainable business
practices.
MSCI EUROPE SRI VS MSCI EUROPE
