gE Blog Series: Sustainability in Global Business Part 3 - Socially Responsible Investing

A Socially Responsible Investment (SRI) is an investment that is considered socially responsible because of the nature of the business the company conducts. Essentially, when using an SRI framework, an investor not only considers a company’s financial information but also the way in which the company operates. A major trend in recent years with SRI is the sustainability and environmental impact of a company. The Forum for Sustainable and Responsible Investment’s (US SIF) Report on Sustainable and Responsible Investing Trends in the United States found that as of 2013, approximately one out of every six dollars under professional management in the U.S. was invested according to SRI strategies. This number is staggering, especially when put in the context that the United States lags behind many other nations in Socially Responsible Investment.

Europe is by far the world’s leader in terms of SRI, with considerations of companies environmental, social and governance factors beginning decades ago. SRI in Europe is even advancing beyond traditional stock investments with many municipalities and other private-sector borrowers issuing “green bonds”, which are used to fund environmentally friendly development projects.

While socially responsible investing has been trending for years in Europe, it is now beginning to take hold in many emerging economies, especially in Asia. Billy Hwan, a portfolio manager for Parnassus Asia Fund, describes a landscape such that merely a few years ago Asian company managers used to laugh in his face when asked about sustainable business practices, but now “most of the companies I talk to…understand that to attract investor capital and to grow over the long term, they need to consider the overall sustainability of their business practices.”

Overall, the global push toward socially responsible investment is having, and will continue to have, a major impact on the way companies operate. In the words of Zoe Knight, a managing director at HSBC, “If you want to be taken seriously in the global economy, you have to have an ESG (environmental, social and governance) strategy.”