What Does Socially Responsible Investing Really Mean?
Fair trade products and ethically responsible consumption are probably not strange terms to you. Many heavyweight companies are increasingly making sure that they engage in socially responsible and fair business practices, including paying producers and their workers a fair and just amount or purchasing raw materials that are obtained from sustainable sources.
Socially Responsible Investing (SRI) runs along a similar vein, and investors consciously put their money in companies that create a positive impact in society.
The Myth of Socially Responsible Investing – It’s Just Too Niche
Socially Responsible Investing isn’t just an investment concept for wealthy people who can’t be fussed about their investment returns. It simply takes into account what mainstream investing ignores, and that is social good.
This means that any company, whether a fledgling startup or a conglomerate, can qualify as a socially responsible investment choice.
In addition, taking into account the sustainability practices of a company is not just a feel-good thing to do, but also sensible and practical. A company that has a track record of exploiting labour or flouting environmental regulations will eventually come to be penalised by law, or simply lose customers in today’s more socially conscious world.
For example, in 2015, when Singapore and its neighbouring countries were shrouded in haze from the raging forest fires in Indonesia, many companies and consumers boycotted brands from companies that caused the haze.
Both NTUC FairPrice and Cold Storage announced that they would withdraw all paper products from Asia Pulp & Paper Group (APP), an Indonesian firm.
The boycott started with the loss of the “Singapore Green Label” certification by the Singapore Environment Council (SEC), and it resulted in a S$100 million revenue loss for the company.
What to Look Out For In an SRI
There are really no formalised guidelines as to what constitutes an SRI. The deeper you look into a company’s supply chain, the more difficult it is to define the company as a ‘purely good’ one.
For example, Coca Cola may be generous with its social and community programmes, but Coke is terrible for the health. Ultimately, the most useful reference is your own set of values and conscience.
- Does the company’s core business revolve around products and activities that are known to cause harm to society or the environment? For example, it can be said that casinos run on the greed and addiction of customers.
- Is the company incorporating ethical business practices that ensure that suppliers or producers are not being exploited?
- Is the core business of the company one that directly addresses a social and environmental concern (e.g. recycling or educational companies)?
- Do you have a specific cause that you believe strongly in and think that companies should do their part in protecting or promoting it? For example, low carbon emissions or gender and ethnic diversity are values that a company can uphold and measure up to.
How to Invest in an SRI?
It’s getting increasingly easier to take social responsibility and sustainable practices into account when you invest. Although the most thorough way is to study the company’s reports and do your own research, there are also other ways that can help you in your SRI ventures.
1. Singapore Exchange Sustainability Index
The SGX Sustainability Index consists of liquid stocks listed on the SGX that are screened according to environmental, social, and governance (ESG) criteria. The index qualifies stocks that not only meet the sustainability criteria, but also meet minimum liquidity requirements.
It also identifies companies who not only meet but are high-performers in the criteria. However, it is by no means a moral-compass, but it is definitely useful to help you narrow your search.
Sustainability reporting has also just been made mandatory by the SGX, and listed companies will have to publish a sustainability report at least once a year. The report has to include five main components, including ESG factors, policies, practices and performances, targets, sustainability reporting framework; and their board statement.
2. Invest Through Funds
Singapore, and in general Asia, lags far behind the US and Europe when it comes to SRI, and it wouldn’t be difficult to find funds in the US that are specifically tailored to SRI.
On home ground, there are a few institutions that you can consider. UBS, for example, offers impact investing and has a number of clients from the region.
3. Impact Investment Exchange
You may not have heard of Singapore-based Impact Investment Exchange, but if you’re serious about taking a step forwards in putting your money where your values are, then the Impact Investment Exchange may be the organisation that you need to check out.
It offers various investment platforms that provide budding social enterprises with capital and mentorship, and even enabled the trading of impact securities in Asia. The Exchange is truly one to look out for as SRI gains momentum in this part of the world.
As people become more aware of how unsustainable and unethical business practices can really lead to disastrous consequences, it is unsurprising that people are seriously re-evaluating the way in which they consume and invest.
If you’re keen to spread your investment, give this diversification method a try.