Qu’is the’Socially Responsible Investment SRI ?

Associating societal responsibilities where CSR of a sustainable enterprise with the ESG criteria reflects socially responsible investment. What does this form of investment really mean and how does it manifest itself ?

Socially Responsible Investment SRI: what is it? 

L'socially responsible investment is part of the policy of every sustainable company. To this end, it applies ESG criteria (environmental, social and good governance) as well as its CSR (corporate social responsibility). Each company must then combine its financial management with environmental actions.

From a historical point of view, this form of investment originated in the Anglo-Saxon society of the 18th century. A practice that is also visible in the United States towards the end of the 19th century. During these eras, SRI is initiated by the religious community.

This prohibits its adherents from investing in any form of alcohol, weapons and tobacco.

Nowadays (in the modern economy), this SRI is accessible at the level of banking institutions in the form of investment funds. The management of the latter includes environmental and social elements. It is another way of integrating sustainable development into the world of finance.

Among the criteria used, we can cite the respect for the environment and the employment policy.

At Europe, socially responsible investment constitutes a small fraction of the total investment volume 10% of asset management. These are all the rights and assets that a company owns. These include patents, goodwill and buildings.

Despite this small percentage, this form of investment is constantly growing.

Experience has shown that this practice has enabled many companies to cope with crisis situations. It is a good guarantor of your investments.

What are the forms of SRI ?

L'socially responsible investment can take several forms including :

ESG Funds

The ESG funds are bond and/or equity portfolios. These funds include governance, environmental and social criteria in their investment processes. In other words, bonds and equities have been subjected to drastic tests.

This is the principle of a sustainable company in order to assess the sustainability of its activity.

To be included in the ESG funds, the securities in question must have extremely high sustainability ratings. Companies that do not recycle or that are polluting are not included. An establishment with a failing management is also excluded from these ESG funds.

The use of these funds at the time of stock selection allows to make the right decisions. For example, the shares of a company with a low carbon footprint will be less volatile than those of a polluting company.

In short, ESG funds are analysis criteria. They will allow to take into account the development that a company integrates in its strategy of sustainable development. This can include the level of transparency of executive compensation, the quality of social dialogue and CO2 emissions.

Exclusion funds

Also called the ethical investments, this is a practice that is more widespread in Anglo-Saxon countries. For religious, environmental or moral reasons, they aim to exclude certain sectors such as nuclear, arms, tobacco, fossil fuel… It is a form of sectoral exclusion.

This method also aims to exclude the portfolios of companies that do not follow international conventions. In this case, we talk about normative exclusion. This is the case for countries or producers who still use GMOs in their activity.

Considered as dangerous, this product is excluded in favor of organic farming and breeding.

Shareholder Engagement

It is a form ofsocially responsible investment that comes from the investors. The latter require companies to adopt a much more socially responsible policy. To achieve their goals, they can challenge them directly or vote during a general meeting.

L'shareholder engagement is always on the agenda of a general assembly. In any case, this is the case in some countries like the United States. Such a requirement forces companies to be more responsible.

This implies making more energy savings in order to reduce greenhouse gas emissions.

When the dialogue is unsuccessful, the investor can resort to different levers. For example, it can make engage a public communication to describe the advance of the commitment. This will allow the company to demonstrate its extra-financial inadequacy.

To remedy this, it will divest or freeze its position. In case he is a shareholder, he can put pressure on certain decisions. For example, it can refuse resolutions proposed during a general meeting, it can also support external resolutions.

How to develop SRI in your company ?

The development of SRI within a company revolves around three main points. It is a question of the economy, of the social dimension and ecology. A company cannot be qualified as sustainable if it does not take into account these 3 elements.

In order to offer a sustainable investment, investors have adapted this concept to their challenges. The result is sustainable and responsible finance. Although the environmental part is not omnipresent in some names, it remains one of the fundamental pillars of the investment.

In any case, this is the case in Germany.

To develop a socially responsible investment, you have to put into practice the requests required by the method. Among others, encourage local recruitment and avoid discrimination. Taking care of the customer/supplier relationship and taking into account health and safety.

The environmental criteria emphasize different points. Among these, there are water management, energy saving and greenhouse gas emission management. Not forgetting the part reserved for governance.

It requires the establishment of a good working atmosphere, the right of shareholders, a good remuneration, the establishment of a dialogue… when the company also thinks about its environment in addition to its profit, it establishes a primary form ofsocially responsible investment. All that remains is to deepen the approach so that it can meet all the requirements that this policy demands.