Product Strategy Compass Article Socially Responsible Investing: A Rapidly Evolving and Increasingly Popular Strategy

Investors have raised concerns about the social impact of their investments for at least 50 years. In the 1960s, political causes like the civil rights and anti-war movements prompted certain investors, primarily in Europe and the US, to question the policies their assets were supporting. As a result, these investors sought to exclude certain companies and industries from their portfolios. This approach to socially responsible investing (SRI) continued into the 1980s when many individuals and institutions pulled their assets from South African operations as an objection to apartheid.

Over the past 20 years, SRI has moved far beyond simply excluding objectionable investments to identifying certain positive attributes – ones that investors not only support but that can also generate superior returns. These factors – typically classified as Environment, Social, and Governance (ESG) – include a company’s energy use, its legal and compliance efforts, the working conditions it provides, and its corporate governance structure. ESG investing seeks the same objectives as traditional investment approaches: superior, risk-adjusted investment returns. In fact, many ESG investors assert the best way to achieve such returns is by including these factors explicitly into the investment process. Today, SRI is no longer solely about excluding certain companies’ shares and trying to play “catch up” with a benchmark using other investments. Instead, ESG managers believe that socially responsible investing is good for portfolios, as well as for the planet....

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