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Albert Vilariño Alonso Follow

Consultant in Corporate Social Responsibility, Sustainability, Reputation and
Corporate Communication,and integration of people with disabilities.
Jan 3 · 5 min read

Socially responsible investment

and its barriers.

Photo by Francisco Galarza on Unsplash

Note: This article was first published in Spanish and can be found here.

Socially responsible investment (SRI) is a growing trend worldwide

although it still has a way ahead and barriers to demolish.

Fortunately, for many investors, SRI has been a guiding principle for its
operations for some time. The number of stock funds that serve these
investors has multiplied in recent years, including industry heavyweights
such as BlackRock Inc. and Goldman Sachs Group Inc.

In fact, since 2009 there is a United Nations initiative called Sustainable

Stock Exchanges (SSE) in the form of a learning platform to explore
how investment management companies, in collaboration with investors,
regulators, and companies, can improve corporate transparency and
Ultimately the environmental, social and corporate performance and
encourage sustainable investment.

It is certainly not a minor initiative if we observe that it includes more than

60 stock exchanges, which represent more than 70% of the stock markets
quoted all over the world.

As we can see, both investors and the companies that manage these
investments move more and more for reasons other than purely economic
and return on investment.

What moves investors to invest in

socially responsible organizations and
projects?
Four are the main motivations for investors to decide more and more for
SRI, according to a study by the World Resources Institute (WRI):

• Perception and growing evidence of relevance: Long-term

investors are beginning to recognize that considering performance on
key sustainability factors can help identify the best-positioned
companies to thrive in a world increasingly limited in resources. That is,
the growing number of studies documenting a relevant association,
mostly positive, between sustainability and corporate financial
performance, makes the investments that contemplate putting money in
responsible companies are increasingly better seen.

• Changes in policies and regulations: These changes are making

environmental, social and corporate governance externalities more
financially relevant for companies and therefore for investors.
Developments in existing policies increase the value of sustainable
investment practices and make ignoring them a risky business.

• Alignment with investor missions: Asset owners pursuing an

investment aligned to their mission use their holdings as an additional
means to fulfill that mission or, at a minimum, to manage investments
in a way that does not undermine it.

• Disinvestment campaigns in fossil fuels: Much of the recent drive

towards sustainable investment has been stimulated by the fossil fuel
disinvestment movement, which advocates not having shares in any
company with fossil fuel reserves in its balance sheet.

It seems then that the number of investments and quantities invested under
criteria of sustainability will increase progressively, but the SRI also has
difficulties that put sticks in the wheels of that advance.

What holds investors in making

responsible investments?
A recent article published in GreenBiz showed that before the rise of the
SRI and the expectation it generates, there is still “a certain confusion,
doubt, and skepticism” towards it.

The barriers to SRI can be grouped into four main reasons, or perhaps we
should call them perceptions since they are not totally true.

The first of the barriers or myths is the belief that SRI are not as
profitable as the investments that can be made in businesses, let’s say less
sustainable and ethical, such as weapons, tobacco, alcohol, those that
contribute to climate change being producers of fossil fuels, or other similar
ones.

Against this perception, the article gives several examples supported by data
according to which sustainable equity funds usually have equal or higher
average returns and volatility equal to or lower than traditional investment
funds.

Opponents and skeptics to SRI also usually put as the cause of low interest
to her that violates the so-called “fiduciary duty” or the legal
responsibility of the investor to make investment decisions in the best
interest of the beneficiary, calling to maximize the returns on investment
above all.

But, on the contrary, the practices of sustainability and corporate

responsibility are not contrary to that duty since they can reduce the cost of
capital for companies and improve operational performance, as is the case,
for example, with those that improve the use of energy and/or reduce waste.

The perception that SRI is risky in uncertain markets such as the current
ones is the third barrier we face. Of course, the entry into the political
Donald Trump board does not help to dispel doubts and generate certainty
so that insecurity can appropriate the decisions of certain investors.

To this is added the existence in the past of bubbles in the clean

technologies sector in the period 2010–2011 and the doubts about whether
the policies will create the necessary incentives to initiate a powerful
transition to a low carbon economy.

But seen from a perspective that takes into account the Paris Agreement,
the Sustainable Development Goals (SDGs) and other initiatives, what is
really risky in terms of investments is ignoring those agreements and not
taking into account the global impulse behind them.

Lastly, there is a perception that SRI is “unviable” because it requires

jobs and activities that other types of investments do not need. But that
feeling is also wrong since there are abundant resources and specialized
technical aids to help investors start their responsible investments.

Quite simply, this is true, it is necessary to invest economic resources at the

beginning that serve to prepare and strengthen the initial decision making,
generally aimed at the realization of small investments of great liquidity,
with time and experience, to deepen more in the SRI at the same time that
the necessary follow-up tools are made available.

Information and transparency, necessary

keys for a real SRI.
The technical resources and tools are of vital importance for the progress
and diffusion of the SRI. The development of different standards has
helped to generate a reliable and consistent source of information with
which to evaluate the corporate social responsibility performance of
companies and provide knowledge for investment decision making.

Sustainable funds must be strictly monitored and also small investors, those
like you or me who can go to a bank to invest our small savings, we must be
correctly and transparently informed on exactly what funds we are
putting our money and what companies are there behind.

Without going any further, the article “Pay Close Attention to What’s in
Your Ethical Fund” of Bloomberg gives us an example of six of the thirty
main “socially responsible” investment funds that include in the companies
that are dedicated to the production of tobacco such as British American
Tobacco or fossil fuel extraction such as Exxon, British Petroleum and
others.

We have to be very attentive to where our money goes as small investors.

Finally, as we discussed in a previous article on the purpose of

organizations, and even taking into account this need for transparency,
information, and dialogue, companies speak in Powerpoint while
investors do in Excel.

There is still a great mismatch in the information on sustainability that

investors ask of companies and what companies really offer them.

And, like any other stakeholder, investors must be given the information
they need and with the appropriate format and narrative.

Corporate Responsibility Social Responsibility Investment Csr

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Albert Vilariño Alonso Follow

Consultant in Corporate Social Responsibility, Sustainability,
Reputation and Corporate Communication,and integration of people
with disabilities.

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