As investors become increasingly aware of issues such as pollution, climate change and human rights violations, it seems more and more questions are being asked about how their money is being invested. Is it being invested in a way that is both socially and ethically responsible? Is it invested in a way that will make their future a better place?
What is socially responsible investing?
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Socially responsible investing (SRI) is an approach that seeks to achieve financial returns, while integrating environmental sustainability and social responsibility within the investment decision-making process. Investing within this framework does not replace traditional investment analysis. Instead, it adds an additional layer to the analysis, revealing insights that are not always exposed through financial analysis alone.
Company value is not just determined by tangible assets, such as financials, investments and capital assets; value is also made up of intangible assets, like employee and customer relationships, brand and corporate reputation, corporate governance and environmentally and socially responsible practices. It also involves seeking out those industries considered to be the most socially and environmentally sustainable, such as healthcare and waste management, and avoiding those considered less sustainable or unethical, such as tobacco and gambling.
A trade off in investment performance?
In the past, there has been a tendency for investors to believe they won’t get competitive returns if they invest in investments with a sustainable focus. However, SRI funds are not just for ethical investors, they also appeal to those looking to invest in well run, responsibly managed companies that are targeting future returns in a variety of sustainable businesses. Various studies and reports indicate that there is a positive relationship between good corporate, social and environmental governance and financial performance. In their 2010 benchmark report, the Responsible Investment Association of Australasia (RIAA) identified that over most time periods, the average responsible investment fund performance outperformed its mainstream counterpart.
It’s not surprising then, that we expect investment options managed with a socially responsible focus to increase in popularity, both globally as well as here in New Zealand.
AMP Capital is the largest responsible investment manager in Australasia, managing funds with an environmental, social and corporate governance purpose since 2001. In New Zealand, AMP Capital offers two responsible investment funds: the AMP Capital Responsible Investment Leaders Balanced Fund and the AMP Capital Responsible Investment Leaders Global Shares Fund, which are both available through RaboDirect.