Sustainable and Responsible Investment

What is sustainable and responsible investment?


Although not a new idea, what is generally referred to, particularly in the US, as ‘socially responsible investment’, has grown in popularity in recent years; the surge in new ideas, concepts, strategies and funds being accompanied by a raft of terms and labels to try and identify, differentiate and describe them. While there are tangible differences between many of the concepts, some overlap and others appear to be very similar, something that can lead ‘undereducated’ advisers and clients to use some of the terms and labels interchangeably, in the belief that the concepts are either very closely related, if not actually the same thing.

It’s a situation that can cause confusion with, in some instances, unintended consequences. For an unwary investor, one who perhaps doesn’t fully understand the nuances of the terminology, it’s all too easy to accept an adviser’s recommendations at face value – only to find they’ve unwittingly put their money into a fund that embraces the very issue they wanted to avoid.

Of the many terms in use, potential investors should become familiar with four terms*:

  • socially responsible investment (‘SRI’)
  • sustainable and responsible investment (unfortunately, also ‘SRI’)
  • environmental, social and governance (‘ESG’)
  • impact investment

Understanding the differences between these four strategies – to both determine and verify precisely which strategy the adviser is talking about – will help investors navigate their way to ensuring their money goes exactly where they want it to go.

*Inevitably, presenting and defining these four terms coherently means there is some repetition within the overall text.

Socially responsible investment – ‘SRI’ (predominantly the USA)

Although the concept dates back to Biblical times, socially responsible investment, as we know it today, has its roots in 18th-century middle-America. ‘SRI’ started as a simple strategy to enable investors to avoid those funds they did not want to invest in – this being almost always a result of moral or religious beliefs that either discouraged or prohibited any form of involvement in certain activities and, therefore, any company active within them.

A typical example was a determination by some religious groups, initially Quakers and then Methodists, not to invest in what they saw as ‘sin stocks’; the shares offered by those companies involved with alcohol, gambling, tobacco or armaments. This gave rise to the creation of the ‘Pioneer Fund’ in 1928, one of the first funds to be created using SRI principles, and set a precedent of creating funds that allowed investors to positively follow their conscience.

This need resurfaced during the 1960s when protestors campaigning against the war in Vietnam demanded that university endowment funds were not invested in defence contractors.

And, so the trend continues, with significant ‘world events’ leading investors to demand the opportunity of putting their own individual beliefs, their values, before a fund’s financial performance.

Sustainable and responsible investment – SRI (predominantly the UK)

The term ‘sociably responsible investment’ has evolved over the years into something of a catch-all term for the variety of concepts and strategies designed to help investors choose where to put their money using their own, personal, ‘sociably responsible’ values – however, over the last two decades, climate change and the environment have come to play an increasingly prominent role.

The threat of climate change has, particularly here in the UK, added a new dimension to investment strategies, that of sustainability. Although it’s easy to assume that ‘sociably responsible investment’ might, and perhaps should, include sustainability, a new concept – ‘sustainable and responsible investment’ – evolved to ensure it is specifically catered for. ‘Sustainable and responsible investment’ puts sustainability at the heart of the concept as it refers to investing in, primarily, only those companies that take sustainable development priorities into account.

In effect, whereas the ‘original’ SRI provided a method of avoiding some companies, the ‘new’ SRI focuses on providing a way of identifying only those companies that have environmentally sustainable credentials and are ethically responsible.

As with ‘socially responsible investment’, ‘sustainable and responsible’ investors put their values ahead of fund performance, the new concept providing investors with an opportunity to choose funds that have either been assessed as being ‘green’ or especially created to be so.

Environmental, social and governance investment – ’ESG’

ESG investment is markedly different from either socially responsible or sustainable and responsible investment as the company or fund’s financial returns remain the primary selection criteria – it’s not ‘value led’. ESG uses independent ratings to identify a company’s ESG opportunities and risks, ie: the money they stand to either gain from taking ESG opportunities, or lose by not acting on ESG risks.

Typical factors commonly considered in an ESG audit include:

  • Environmental – energy consumption, pollution, climate change, waste production and natural resource preservation.
  • Social – human rights, child / forced labour, community engagement, health and safety and stakeholder relations.
  • Governance – quality of management, board independence, conflicts of interest, executive compensation, transparency and disclosure.

For the environmentally or socially conscious investor, ESG does not eliminate any particular company or group of companies from fund selection – doing so is not its objective – so, as noted earlier, it’s not a ‘value-led’ strategy.

Impact investment

Impact investment concentrates on ‘intent’ rather than returns: investors put money into those organizations dedicated to solving specific social and environmental problems. A key aim is to encourage an organization to achieve goals that benefit society or the environment; the investment being expected to produce a positive outcome in terms of social impact.

The Global Impact Investing Network (GINN) has published four guidelines:

  • Intentionality – investments are made with the intention of creating positive social or environmental change.
  • Investment with return expectations – investments should generate a return of capital at a minimum.
  • Range of return expectations and asset classes – different investment areas should have aligned expectations about returns (which may, sometimes, be below market rate).
  • Impact measurement – investments should have an exceptional level of transparency so investors can assess how their investment will help to achieve meaningful change.

Impact investing is a rapidly growing industry driven by investors who are determined to cause positive social and environmental changes in addition to achieving a financial return. Returns may be lower compared to ESG, as concessions may be made to support early-stage ventures in less developed markets.

For those investors who really do want to make a difference in social equity, impact investing offers a direct approach as it uses highly focused investments.

Other terms

In addition to understanding the significance of these four ‘key terms’, there are several others that would-be investors should be aware of.

Corporate social responsibility (CSR)
Also referred to as corporate responsibility (CR), this is the term used by organizations to describe what they believe to be a ‘responsible method’ of addressing the challenges they face in terms of social and environmental impacts.

Corporate governance (CG)
Corporate governance relates to company management issues such as board structure, remuneration, reporting and bribery / corruption. In effect, it’s the organization’s rules describing how it operates on a philosophic rather than procedural basis.

Ethical investment (EI)
This is generally understood to relate to funds that ethically screen investments. It often covers a wide range of social, ethical or environmental issues. Such investments often focus heavily on issues that relate to personal values or opinions, such as opposition to armaments, tobacco, alcohol, pornography, gambling or animal testing. Both socially responsible investment and sustainable and responsible investment are examples of ethical investment.

Green investments
A generic term used to describe investments that focus on environmental issues.

SRI … and SRI
In the USA – and, until relatively recently, in the UK – the abbreviation ‘SRI’ stood for ‘socially responsible investment’. However, in the UK, an alternative strategy – ‘sustainable and responsible investment’ – evolved that focused heavily on ‘green’ issues (in addition to much of that covered by traditional SRI). Although there are significant differences between the two strategies, confusingly, both share the same abbreviation. Compounding this, the phrase ‘sustainable and responsible investment’ is a bit of a mouthful, leading many to refer to it simply as ‘SRI’ – with inevitable results. If in doubt, it’s best to verify exactly what the abbreviation ‘SRI’ actually stands for: is it ‘S’ for ‘sustainable’ or ‘S’ for ‘social’?

Social, ethical and environmental (SEE)
A historic term used to describe the entire range of issues covered by SRI, green and or ethical investments.

Evolved from the term ‘Sustainable Development’ as defined by the UN’s 1987 Brundtland Report: “…meeting the needs of the present without compromising the ability of future generations to meet their own needs.”  In terms of investment, this broadly means looking for companies that make decisions in a way that safeguards the quality of life of those that are – or maybe – affected by their operations.

Thematic investing
Investments that follow a particular theme. These may be socially driven, environmentally oriented or a combination of the two, sustainability funds being a typical example.

How can One Financial Solutions help you?

Every investor wants to put their money into a fund that will return a profit, but a growing number consider their own personal values to be equal to, if not more important than profit alone.

Deciding to use ‘sustainable and responsible investment’ as a value-led investment strategy adds an additional layer of complexity to choosing an investment fund as, of course, information about the fund’s environmental, social, ethical and governance credentials need to be considered.

One Financial Solutions is here to help you. We can explain how it works and, with access to information that will allow you to decide exactly which of the various sub-strategies and funds best meet your values, make it a very straightforward process.

So, if you’d like to know more about ‘value-led’ investment strategies as a method of investment, please call us on 020 3714 9565, or ask us to call you by sending an email to


The value of your investment may go up as well as down and you may not get back the initial amount you invested.