ecently, we had a great workshop and discussion on sustainable and responsible investing. Workshop leader Sara E. Murphy took us through the background and current trends in SRI and delivered some great tips on finding hidden value in companies that embrace sustainability. We also discussed some of the key issues that would be relevant to students, professionals, and investors, and what specific points make the financial case for pursuing sustainable business paths.
History of Responsible Investing
It began as a religious movement using an exclusionary process that eliminated investments that did not fit with the investor’s values. SRI has now evolved into an engine for seeking out investment opportunities. SRI is currently a powerful value-adding investment strategy if managed correctly.
SRI: A Victim of its Own Success?
Fifteen years ago, analysis was easy. Then SRI became the world’s most quickly growing asset class. Now, many companies want to wear the responsible investing mantle. This makes the analyst’s job a nightmare. SRI has suffered some of the same issues as the organic food label, as standards and claims are difficult to verify with certainty.
State of Responsible Investing Today
To get a clear sense of what role SRI plays in the broader market and for individuals, it’s helpful to consider the basic premise of investing. Investment, in the purest sense of the word, is the act of buying a piece of a company to promote its growth over time. Long-term investment necessarily requires sustainability, in the purest sense of that word. It’s important to ask basic questions to put metrics and data in context.
Climate Change: You may not think it’s a risk, but the SEC now requires disclosure in annual filings. Other risks include:
The agricultural and energy impacts of climate change converge to bolster new industries such as Carbon Capture & Storage, Energy Efficiency, and Future Grid. An example is Rio Tinto, which now has an enhanced Social License to Operate built on community consultation, an unexpected opportunity derived from sustainability practices.
Food for Thought (or Indigestion)
Although SRI is growing in importance, often times some of the most egregious abuses barely register in stock prices. Examples include Chevron and the Ecuadorian disgrace, Shell and the wasting of the Niger River Delta, and Monsanto and the war on small farmers. Food for thought: If it doesn’t hurt the stock price, does it matter?