While the concept of Sustainable Responsible Investment (SRI) is a relatively new one, the field is growing rapidly. In turn, the increasing number of people choosing to invest ethically is having a big impact on the market’s ability to raise cash for eco businesses.
What is ethical investment?
According to the Securities Exchange Commission, a growing number of investors are choosing to place their money with companies that reflect their ideals and values. How are these ideals and values determined? A variety of methods are used. They can include:
- Negative screening – which means avoiding some industries altogether, including gaming, weapons manufacturers, etc.
- Positive screening – certain activities or business types are given preferences, for example, renewable energy, healthcare, etc.
- Best of sector – the companies that lead the way in ethical operations in their sector, based on an environmental, social or sustainable basis. This can allow exclusion of companies that are known for unsustainable or harmful practices, such as clear-fell logging or open cut mining.
- Socially responsible overlay – selecting a portfolio in the usual way, but also involving a process for addressing SRI.
There are many superannuation funds, for instance, which now incorporate SRI concepts into their portfolios. It’s worth investigating whether or not a super fund has such a scheme before joining up.
Who do you love? SRI certified businesses
Deciding what kinds of businesses or organizations you’d like to support with your investment is the logical place to begin. For overviews of hot industry areas take a look at Ethical Investor magazine which gives analysis of current trends and more detailed information for consumers.
The Ethical Investments Association of Australia is the place to look if you are seeking a financial planner well-versed in ethical investments. It is the first organization of its kind in Australia and provides Sustainable Responsible Investment (SRI) certification for organizations and professionals who advise on SRI investments.
Making money, saving the planet
In the 6th Annual SRI Benchmarking Study commissioned by EIA the figures for ethical investment, both in terms of industry growth and potential returns for investors, were very favourable indeed.
In 2000, the total for SRI managed portfolios was only $325 million. Between 2005-2006, due largely to healthy share market returns, managed SRI portfolios grew by 56 percent during the 2006 financial year, from $7.67 billion to $11.98 billion. To compare, mainstream managed funds grew by only 15.5 per during the same period. Since 2000, SRI managed funds have increased by 3,587 percent.
The main factors contributing to such growth were:
- Positive investment performance - $688m;
- Net flows to wholesale funds and mandates - $1,358m
- Net flows to retail funds - $185m
- Incorporation of renewable energy
- Infrastructure funds $1,312m
- Growth of new funds $773m
Super growth
There are other interesting trends in SRI investments also. A total of 13 community finance providers, which includes a small but growing pool of microcredit loan funds, grew by 23 percent last year.
In 2006, 122 superannuation funds in Australia offered 350 SRI options. As with all things, the more demand there is for this type of investment, the stronger the sector will become and the better the returns are likely to be. It also means that more money is being made available for sustainable businesses and so, over time, you can expect the business landscape to change. Investing in these funds and, through them, these sustainable businesses, is one way to encourage new industries and inspire old businesses to transition to a more ideal-driven, environmental and ethical approach… Sustainable Responsible Investments are one way to make money while changing your world.
