The socially responsible investing (SRI) movement has been gathering momentum for the last 20 years or so. According to the 2008 PRI Report on Progress from the United Nations Economic Program during the previous 12 months the number of signatories to the Principles for Responsible Investment (PRI) “has almost doubled to approximately 360 institutions,” representing more than $14 trillion in assets.
Adam Seitchik, CIO of Trillium Asset Management, “the oldest and largest independent investment manager dedicated to responsible investing, in the United States,” says while that sounds very encouraging, a lot of it depends on how you define “responsible.”
“If you look at the Principles for Responsible Investing which came out from the U.N.,” he says, “there’s nothing in there about negative screening and some of the other things that have been traditionally attached to socially responsible investing.” Instead there’s emphasis on how environmental, social, and governance (ESG) factors can have an impact portfolios in the long run.
“We really need to incorporate the analysis of these factors into our investment thinking,” he continues. “That’s been a way to expand the tent around responsible investing. If responsible investing is defined as we’re going to screen out all military contractors, it becomes a nonstarter for these large universal investors, who are kind of invested in everything. They’re coming up with strategies that tend not to be screening strategies, but themed investing. So they’ll invest in clean technology funds or sustainability funds or being more active investors and going out to their investment managers or going out to the companies and saying, “these are the practices we want to see you incorporate across our entire portfolio.”
Among the positive signs that Seitchik points to in the SRI movement is some of what’s being done by the Investor Network on Climate Risk. “I think that’s the most successful network in terms of expanding the tent of people interested in incorporating environment, social and governance factors, into their investment program, it’s not being defined as socially responsible investing, but it has a lot of commonality with traditional socially responsible investing. So nomenclature is kind of difficult. We’re a member of INCR, but I don’t think that the North Carolina pension plan that is a member of INCR would say that we’re necessarily social investors, but they are signing up to a set of activities through INCR which are really intending to reduce climate risk systemically, which is going to help their portfolios in the long run. I think that’s a real trend, to think about environmental, social and governance factors as risk and opportunity factors.”