A diverse and dynamic market

SRI is a diverse and dynamic area of investment.  This diversity is central it its appeal to investors  and its usefulness to advisers.

Becoming familiar with why options are so diverse can be very helpful to advisers.

Diverse needs and solutions

There are two main reasons why sustainable and responsible funds are so diverse:

  1. Investor needs, views and goals vary
  2. Fund manager views, aims and strategies vary

Download ‘Client motivations and Strategic drivers’ summary pdf here.

The following key principles can help advisers to understand why even though many funds appear to have the same aims  – when it comes to translating them into investment decisions outcomes vary.

Adviser Tips – some key SRI principles:

• Few, if any, ethical issues are entirely black or white – most are somewhere between the two.

• Few, if any, companies are entirely good or bad; most have a range of strengths and weaknesses.

• There is rarely only one way to tackle a major challenge.  A combination of investment approaches often works best.

A further important feature of this market is that issues change over time.   An example is the shift in public opinion regarding investment in South Africa.  This was one of the earliest ethical exclusions for screened funds, but is no longer relevant following the end of the Apartheid regime.  Other examples include the emergence of new issues such as carbon foot-printing and the emergence of bribery as an investment concern.

In addition, not all funds in this cohort make ethical decisions.  Some follow themes and are charged only with seeking out the best possible investment returns.  These themes, likewise, evolve over time.

As a result on going change is a permanent and an essential feature of this investment arena – which collectively seeks to cover all ‘extra financial’ issues.

Different jargon

Different terminology is used by different areas of the SRI market and there remains much debate around its use – particularly between the institutional and retail markets.  In practice however many terms can be used almost interchangeably and it is best not to get too drawn into these debates.

The term ‘SRI’, for instance, is widely used as an ‘umbrella’ phrase in the individual investor market to describe almost any style of investment that has ‘sustainable’ or ‘responsible’, ‘green’ or ‘ethical’ features.  It is also often used interchangeably with the term ‘green and ethical investment’.

Click here for our jargon buster.

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