Socially responsible investing: 5 key points to better understand

Socially Responsible Investing is a form of investment based on social and environmental criteria. Oriented towards sustainable development, it is attracting more and more individuals and investors. Want to know more about this form of sustainable investment? Our experts explain the essentials to know on the subject in 5 points.

1. Socially responsible investing: a small definition

A socially responsible investment (SRI) is a form of investment that combines financial objectives with social and environmental issues. It consists of investing in a company, not only for its economic performance, but also for its commitment to sustainable development, regardless of its sector of activity.

2. The different forms of SRI

There are three main forms of socially responsible investment:

  • Socially responsible funds or sustainable development funds;
  • Exclusion funds;
  • Shareholder activism.

To these categories can be added the thematic approach which consists of investing only in sectors with a direct impact on the environment, such as renewable energies, for example.

Sustainable development funds

This is the most widespread category of SRI in France. It is based on the introduction of ESG (environmental, social and governance) criteria in the analysis of listed companies. This form of analysis then allows the investor to better explore the performance of each brand from a sustainable development point of view, with a view to building up his portfolio.

Exclusion funds

In contrast to the thematic approach, exclusion involves excluding certain sectors from SRI investment portfolios. Very widespread in Anglo-Saxon countries, this form of investment is based mainly on religious values ​​and moral standards.

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The sectors generally excluded are as follows:

  • The tobacco ;
  • The game ;
  • The alcohol ;
  • Armament, etc.

In addition to sectors considered immoral, ethical investment funds (exclusion funds) do not take into consideration activities considered dangerous for the environment by their owners. This is the case, for example, of nuclear power.

shareholder activism

Also called shareholder engagement, this form of socially responsible investment consists, for the investor, in ask the company for greater social responsibility. More common in the United States than in Europe, it involves direct questioning of the brand or the right to vote at general meetings.

The main interest of this form of socially responsible investment is that it can oblige the company to take specific social or environmental measures.

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3. The main actors of socially responsible investment

As stated above, SRI is based on a new form of analysis of company assets. To this end, it involves new forms of cooperation and requires the intervention of several actors. In some countries, the field is governed by a very specific legislative mechanism.

The offer and distribution of socially responsible investment products

In general, SRI funds are set up and offered by private management companies. These brands are based on specific systems, in particular an extra-financial analysis unit or division, in order to better explore ESG criteria.

With regard to the distribution of SRI products, these are available from banking and financial networks. With the widening offer, it is even possible to find some close to insurance companies and in some hypermarkets. That said, the assets offered vary from one brand to another.

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Institutional investors

This category of actors includes the banks, insurance companies, pension funds and investment companies. These are responsible for collecting savings from individuals and placing them on the appropriate financial markets.

Note that institutional investors represent the majority of the SRI market in France, as in the rest of Europe for that matter.

Socially Responsible Investment ESG

Extra-financial agencies and ethical stock market indices

They are simply companies specializing in the evaluation of the commitment to sustainable development. They are therefore responsible for analyzing the social and environmental responsibility policy, then the governance of listed companies on the basis of public documents, questionnaires and discussions with their managers.

More specifically, these companies use stock market ratings to create indices to identify the best investment brands from a socio-environmental point of view.

4. SRI: how does it work exactly?

The principle of SRI is relatively simple. First, an extra-financial analysis is carried out on the basis of ESG (environmental, social and governance) criteria in order to identify the assets, companies and communities eligible for the SRI label.

Securities are then selected in order to constitute investment funds which are distributed by banks, insurance companies and the other market players mentioned above.

This process ensures the return on investmentbut also a long-term positive social impactwith a optimal risk management.

5. How to make a socially responsible investment?

Do you understand how it all works? Do you want to invest responsibly?

The good news is that most banks and insurance companies now offer SRI labeled investment products. Among the latter, you can find classic securities accounts, life insurance products, savings plans (in shares, retirement, salary, etc.).

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That said, it is important to carefully analyze certain details before finalizing your socially responsible investment approach. These include in particular:

  • Product performance;
  • The level of associated risk:
  • Your goals and interests.

Clearly define your motivations and your taste for risk. This will help you better manage your resources and set a coherent and quality investment project. Finally, ideally, orient yourself towards an area that you are passionate about or that you master at least a little.

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