The Nuts & Bolts of Sustainable, Responsible, and Impact Investing
There are many terms for this type of investing: responsible investing, impact investing, sustainable investing, ESG investing, socially responsible investing, and the list goes on. But the fact is, according to US SIF: The Forum for Sustainable and Responsible Investing, there are now over $17 trillion invested in sustainably managed assets.
Now Sustainable, Responsible, Impact Investing (SRI) has a long and storied history going back to religious investors who wanted to avoid investing in gambling and companies that produced alcohol. During the 70’s, the green movement integrated environmental awareness.
Traditionally, SRI includes three basic components:
- Shareholder advocacy
- Community investing
Screening There are two ways to screen a portfolio: positive and negative. Originally, SRI focused on negative screening, asking the question “what companies or sectors do we want to avoid?” It has evolved to include positive screening which asks the question “what do we want to own?” Earth Equity Advisors uses both techniques, but is proud to focus on the positive.
Screening criteria typically include:
- Environmental track record & sustainability
- Corporate governance, business ethics &transparency
- Product safety
- Fair, safe and equitable workplace
- International human rights
- Community involvement
Shareholder Advocacy As a shareholder of a corporation, you have a voice in the selection of company leadership and to a limited extent, operational issues. This is accomplished by voting what is called a proxy. Every year, corporations must hold shareholder meetings, and at these meetings, shareholders vote on a range of issues, including resolutions intended to influence company operations. While non-binding, when a vote on are solution moves above 30% approval rating, it’s usually in management’s best interest to listen.
Shareholder resolutions filed over the past several years include:
- Corporate political activity including donations
- Climate change
- Labor & equal employment opportunity
- Executive pay
- Human rights
- Board diversity
- Sustainability reporting
Community Investing The final leg of SRI is community investing. At Earth Equity Advisors, we use community reinvestment act notes which direct capital to underserved communities. This may result in low-income housing construction, job retraining programs or affordable healthcare programs. Most of these programs are domestic, but some are directed internationally as well.