What does it mean to be a “socially and environmentally conscious investor”? This phrase, along with “sustainable and responsible investor” or SRI is being heard from boardrooms to bedrooms and the true meaning of it continues to be misunderstood. Does it mean that I have to put all my money into some “impact” private equity deal that has a fairly decent chance of not returning my capital? Does it mean that all my money goes into some wind or solar power company and I hold on for dear life? Does it mean that I have to hold up a banner from the 20th floor of some nasty manufacturing firm with my clothes off and wait until I arrested? It does not.
Being an “expert” in the field of SRI, I have run into many investors, both pro and con green lifestyle, and their confused look continues to amaze me. What sustainable investing entails are the 3 pillars of SRI:
- environmental, social and governance (ESG) screening
- shareholder activism
- community or impact investing
The first item, ESG screening, basically screens out companies that don’t align with an investor’s values. If corporate governance equality is a concern, then a company with an all-male board of directors may not fit your criteria. On the flip side, if a company is using all organic and grass fed beef in their supply chain, then they may be a consideration for your portfolio.
The second item, shareholder activism, is simply a more direct and organized way of addressing a company and their executive team on issues that company may not be handling well. A few years back, I was able to address Larry Ellison face-to-face and mention that he may be overly compensated considering he earned about 1200 times the average employee at Oracle. This was due to the process of shareholder activism.
And thirdly, impact or community investing is a way to direct investment dollars towards what may be considered more impactful avenues. There is a plethora of vehicles which will take your investment dollars and support enterprises in education, agriculture and ecological stewardship. They, in turn, may give a return to the investor and also may charge interest to the entity that may be receiving funding.
All in all, SRI is something that should be considered for those who are integrating sustainability into their lives and are tired of looking at their statements and see a stock or mutual fund holding which consists of the same big banks that imploded our economy in 2008 and 2009. These investors may also be tired of seeing big oil companies who last year alone dumped millions of gallons into the very bays that feed us. This is simply a step in the direction for those who are already trying to be more eco-conscious in their lives.