In socially responsible investing, or SRI, investors seek to put their money only into companies that are considered good for society. There are different ways to do it, but they all boil down to the same thing: excluding companies whose businesses are considered harmful from portfolios, and concentrating on those whose businesses and business models are considered positive and sustainable.
However it is done, SRI is hardly a niche investment anymore. Quite the contrary, it has become very popular. In 2014 there were 21.4 billion US dollars invested in strategies pursuing an SRI approach, with 13 trillion dollars invested in Europe, 6.5 trillion in the US. That’s a lot of assets.
Many people think that SRI is only for institutional or specialist investors. While it is true that a great deal of SRI investment comes out of the institutional space, it has been gaining ground greatly among retail investors too. In Europe in 2014 there were 375 billion dollars invested in SRI-based retail funds, up from 238 billion in 2012 and 200 billion in 2010. At a compounded growth rate of 25%, this is clearly a strong trend.
One factor driving SRI is that it is increasingly being seen not just as something for do-gooders, but as a viable investment strategy in its own right. That’s because, while SRI clearly is good for society, there is growing evidence that it is good for portfolio returns too. That makes it of interest to all investors.