While it’s no secret that SRI has become a significant trend in the investment community, many investors – particularly those new to the subject – are unsure of the best way to implement these principles. While SRI has much to offer, it does have its hurdles.
Chief among these is the simple fact that modern SRI requires a great deal of work. To carry out effective screening, you first have to elaborate your environmental, social and corporate governance (ESG) criteria. Then you have to evaluate all the companies in your chosen market against these criteria, which means collecting vast amounts of data. Once you have chosen your companies, they need to be monitored to ensure they continue to comply. And as markets and technology change, you may have to adapt your criteria – and potentially be forced to start the screening process over.
Relying on experts
Considering the time and resources required, many investors prefer to "outsource" this task. An excellent way to do this is through a specialty mutual fund, where fund managers actively build and manage SRI-based portfolios with the support of established ESG experts.
Index investors can do the same through the use of SRI-based ETFs. Here, investors rely on the index provider to carry out the screening. This can be a very effective approach, as many of today’s providers have built up extensive expertise both in SRI criteria and analysis methods.
MSCI for instance, which provides the indices for UBS’s SRI ETFs, was one of the first providers to release an SRI index family. Today it is the world's largest provider of environmental, social and governance research, valuation and monitoring tools.
For those convinced of the SRI investment case, passive SRI investing offers many benefits: deep SRI know-how at little or no extra cost and exposure to a wide range of SRI markets, both broad and narrow, combined with the overall advantages of ETFs, including high levels of flexibility and transparency at a low cost.