What is sustainable, responsible and impact investing?
Sustainable, responsible and impact investing (SRI) is an investment discipline that considers environmental, social and corporate governance (ESG) criteria to generate long-term competitive financial returns and positive societal impact.
SRI Assets in the United States: According to the US SIF Foundation’s 2014 Report on Sustainable and Responsible Investing Trends in the United States, as of year-end 2013, more than one out of every six dollars under professional management in the United States—$6.57 trillion or more—was invested according to SRI strategies.
Motivations: There are several motivations for sustainable, responsible and impact investing, including personal values and goals, institutional mission, and the demands of clients, constituents or plan participants. Sustainable investors aim for strong financial performance, but also believe that these investments should be used to contribute to advancements in social, environmental and governance practices. They may actively seek out investments—such as community development loan funds or clean tech portfolios—that are likely to provide important societal or environmental benefits. Some investors embrace SRI strategies to manage risk and fulfill fiduciary duties; they review ESG criteria to assess the quality of management and the likely resilience of their portfolio companies in dealing with future challenges. Some are seeking financial outperformance over the long term; a growing body of academic research shows a strong link between ESG and financial performance.
Terminology: Just as there is no single approach to SRI, there is no single term to describe it. Depending on their emphasis, investors use such labels as: “community investing,” “ethical investing,” “green investing,” “impact investing,” “mission-related investing,” “responsible investing,” “socially responsible investing,” “sustainable investing” and “values-based investing,” among others.
What strategies do sustainable and responsible investors use?
Traditionally, responsible investors have focused on one or both of two strategies. The first is ESG incorporation, the consideration of environmental, community, other societal and corporate governance (ESG) criteria in investment analysis and portfolio construction across a range of asset classes. An important segment, community investing, seeks explicitly to finance projects or institutions that will serve poor and underserved communities in the United States and overseas. The second strategy, for those with shares in publicly traded companies, is filing shareholder resolutions and practicing other forms of shareholder engagement. Sustainable investing strategies work together to encourage responsible business practices and to allocate capital for social and environmental benefit across the economy.
How large is the sustainable and responsible investing marketplace?
The US SIF Foundation's Report on Sustainable and Responsible Investing Trends in the United States identified $6.57 trillion in total assets under management at the end of 2013 using one or more sustainable, responsible and impact investing strategies.
Sustainable and Responsible Investing
in the United States in 2014: $6.57 trillion
From 2012 to 2014, sustainable, responsible and impact investing enjoyed a growth rate of more than 76 percent, increasing from $3.74 trillion in 2012. More than one out of every six dollars under professional management in the United States today—18% of the $36.8 trillion in total assets under management tracked by Cerulli Associates—is involved in SRI.