Socially Responsible Investing | SRI Investing Guide

What is SRI investing?

Socially responsible investing (SRI) means choosing companies based on social and environmental performance while still prioritising potential financial returns from a narrower range of investments.

SRI is generally viewed as building different social and environmental considerations into investment decisions. This can involve excluding certain companies and industries from portfolios or focusing on specific themes – such as combatting the climate crisis or discrimination in society.

Approaches to SRI can differ according to an individual investor's morals, although there are a handful of industries that typically do not feature in any kind of socially responsible investment portfolio, such as tobacco, gambling and weapons.

In some industries, SRI can mean many different things. The energy sector is an example of this. While one approach may be to take an exclusionary view to the sector, other investors may invest in the hope of influencing company behaviour through engagement.

The roots of SRI investing and other moral considerations in investing date back to the mid-1980s, when the UK's first ethical unit trust was created. That fund launched by Friends Provident was nicknamed 'The Brazil Fund' in some circles on account of it being deemed a "nuts" proposition.

For many investors, ethics, social responsibility and financial returns go hand in hand as portfolio priorities.

Different socially responsible investment strategies

There's no one-size-fits-all approach to any kind of investing but that is especially true of SRI, where individual ethics and financial goals are intertwined. Building a resilient socially responsible investment portfolio requires a multi-pronged approach, including:

Negative screening

Positive screening

Best-in-class screening

Impact investing

Thematic investing

Shareholder activism

Investing in a business that can do more to meet its ESG obligations may offer investors the ability to influence its future direction. Simply voicing an opinion on the activity of the business as a shareholder may be enough to set the wheels in motion for change. Many investments in companies also offer individuals voting rights on certain activities and decisions, providing another route for influencing change.

Examples of socially responsible investing

At Greenbank we take seriously our commitments to the environment, human rights and much more when compiling socially responsible investments. Here are a few examples of how ethics and responsibility have shaped our decision-making.

View our engagement review for the full details:

Download PDF

Divestment over displaced communities

The issue: Portfolios had included one of the world's leading experts in land reclamation, soil erosion control, flood control and remediation of contaminated land. The firm was announced as a partner in a high-profile construction project in Saudi Arabia, which has faced criticism for human rights abuses and the displacement of local tribes.

The outcome: Greenbank engaged with the firm to understand what due diligence it had undertaken about these issues. Although there was no evidence of any involvement in the alleged human rights abuses, we considered that its involvement constituted a social and financial risk. As a result, we reduced or divested holdings across client portfolios.

Divestment vote

The issue: A global oil and gas company was included in some Greenbank client portfolios as it was considered best in class in terms of progress towards decarbonisation and investment in renewable energy technology. However, strategic changes altered its receptiveness to shareholder engagement. This meant we no longer had faith in the organisation's ability to adapt its operations and align with global climate ambitions at a fast enough pace.

The outcome: Greenbank began the process of selling holdings in the company across client portfolios. We continue to monitor progress of the company and other oil and gas companies but will only reinvest if we determine they are committed to aligning with global goals on decarbonisation.

The tech sector and AI

The issue: Greenbank is a member of the Investor Alliance for Human Rights (IAHR) and forms part of a working group focused on human rights in the Information and Communications Technology (ICT) sector. Amid artificial intelligence's (AI) recent explosion into the consciousness of many sectors, Greenbank met with a global tech leader to discuss AI and assess its progress in improving algorithm governance and oversight, enhancing user policies and providing users with more options to manage and control personal data.

The outcome: The company in question has since published guidance on developing more inclusive and human-centric AI. It also now ensures that human rights impact assessments and panel reviews accompany all new AI technologies and is developing an annual Responsible AI Report which is currently awaiting investor feedback.

Advantages and drawbacks of SRI

Like any form of investing, socially and environmentally responsible investing comes with a set of pros and cons that may align with an investor's objectives or prompt them to rethink. It's also important to remember that with all investing, the value of investments can go down as well as up and you could get back less than your original investment.

Advantages of SRI

Ethical alignment

Potential for long-term returns

Potential to help influence positive change

Attraction of like-minded investors

Drawbacks of SRI

Non-conventional approach to financial returns

Limited investment options in certain markets

Your options will naturally narrow as you apply more limitations to the investments in your portfolio. That does not necessarily mean sacrificing financial performance, though. Greenbank's team has extensive experience in viewing investments through the lens of sustainability and social responsibility and can craft a portfolio that aims to take advantage of the opportunities in the sustainable economy.

Higher due diligence

Risk of greenwashing

"There are decades of financial expertise and a passion for sustainability right across the Greenbank team. If you're looking for an investment strategy that focuses on financial returns while trying to advance sustainability, you'll feel at home here."

Kate Elliot, head of ethical, sustainable and impact research at Greenbank

How to approach socially responsible investing

Your goals and ethics

This forms the backbone of investment selection in SRI portfolios. Take the time to consider where you stand on various ethical issues, and this can act as the framework for screening later down the line. Of course, your financial goals are also important. Are you looking for long-term returns? What is your appetite for risk? Discussing these factors with an investment professional can help shape your strategy.

Your portfolio

It is important to look at socially responsible investments from several angles. The most important are, of course, your financial goals and your ethical standpoint. But investment best practices like diversification and carefully monitoring your portfolio's performance are also key factors.

Investment management

Partnering with a professional firm may offer a dedicated investment manager to update you on your portfolio's performance and new opportunities as they arise. If you opt for a discretionary service, an investment manager will handle the decision-making on your behalf.

Speak to Greenbank about investment management

Experienced investment managers: We were established in 2004 but our experience in working with clients' SRI considerations stretches back even further. We have a track record of providing investment management that factors in many considerations.
There when you need us: A dedicated investment manager is only ever a phone call or email away, or you can communicate with them via the MyRathbones app.
Award-winning investment managers: We're incredibly proud of our award-winning team that has been recognised at the Investment Week Sustainable Investment Awards and Investment Week Women in Investment Awards.
Actively engaged in the sustainable world: We've partnered with a range of responsible organisations and have set ambitious targets to become a net zero emissions business by 2040. It's part of our engagement action plan and reflects our dedication to pushing for positive change.

To find out how we can help you, fill in our online enquiry form and a member of our team will be in touch:

Search