In the light of the financial crisis SRI (Socially responsible investment) became popular as never before. SRI has already been around for quite some time before the crisis, but this industry has never seen such a volume increase as in the last 4 years. The EU market for SRI almost doubled since 2007 (Cropper, 2010). This clearly shows that the events forcing the financial crisis motivated investors to rethink their criteria for making their investment decisions. Naturally, such a high growth rate of an industry comes from an increasing demand. In order to satisfy the increasing demand for SRI products the SRI industry is going threw a ‘transformative’ and ‘innovative’ phase exploring new areas for SRI, creating new products and services. However, SRI investment has a very broad definition band and cannot be boxed in easily. Hence, as good as it might be, SRI investment brings also many challenges with it, because it is such a broad concept.
Therefore, the purpose of this paper is to give an overview about what SRI is and to find answers to the question of “How sustainable SRI is?”
In the first chapter the paper will discuss the different definitions and motivations for SRI investments. The second chapter will take a closer look on the history of the SRI market and the different categories and approaches to create an SRI portfolio. Further it will present the available product categories of the SRI market. The third chapter will analyse the development of the SRI market in Europe and the US. In the fourth chapter the performance of socially responsible investment will be analyzed. Finally the fifth chapter will discuss the main constraints of SRI.
Table of Contents
1. Introduction
2. Definition and Motivation of SRI Investment
2.1. Definition
2.2. Motivation for SRI investment
3. SRI Market
3.1. History of SRI
3.2. SRI categories
3.2.1. Environmental issues:
3.2.2. Social SRI
3.2.3. Religious or ethical investments
3.2.4. Corporate governance
3.3. Different approaches for an SRI portfolio creation
3.3.1. Screening / Best in class
3.3.2. Shareholder Advocacy / Engagement
3.3.3. Community Investing:
3.4. SRI products
3.5. Product providers
3.6. SRI Indices
4. Development of the SRI market
4.1. Europe:
4.2. USA
4.3. Asia
5. Performance of SRI investments
5.1. Performance of investor activism
5.2. Social Return on SRI-Investment
5.3. Financial Performances and Cost of SRI investments:
5.3.1. SRI Investment performance between 1995 - 2007
5.3.2. SRI Investment performance between 2008 - 2010.
5.3.3. The financial cost of SRI investments
6. Constraints of SRI investment
7. Conclusion
Objectives and Topics
The primary objective of this paper is to provide a comprehensive overview of Socially Responsible Investment (SRI) and to evaluate the research question: "How sustainable are socially responsible investments?" The paper examines the market, motivations, and performance metrics associated with SRI to determine its viability as an extension to conventional investment strategies.
- Definitions and motivations driving SRI adoption
- Categorization of SRI strategies and portfolio creation approaches
- Market development analysis across Europe, the USA, and Asia
- Assessment of SRI financial performance compared to conventional investments
- Critical examination of the constraints and challenges within the SRI industry
Excerpt from the Book
3.3.1. Screening / Best in class
Negative and Positive Screening:
This approach is strongly based on looking at the environmental, social and corporate governance standards of investment opportunities. Negative screening typically excludes companies from investment strategies, which operations are according to the set screening criteria’s (e.g.: harmful to humans or the environment). Typical examples for securities, which get excluded from an SRI investment strategy, are the “sin” stocks. Positive screening, on the other hand, also looks at the environmental, social and corporate governance standards, however it searches for companies to include to the SRI portfolio, which have in general a positive contribution to society as well as a good performance in terms of return on investment. A positive screen can also be seen as a kind of “buy” list for portfolio managers. Such “buy” lists include firms, which have a strong corporate social responsibility (CSR), operate environment friendly, produce safe and useful products and are respectful to human rights (USSIF).
Best-in-class
The Best-in-Class strategy is an extension to the positive screening process. First the criteria must be defined, which standards companies must fulfill to be considered for an SRI portfolio. Secondly these companies get ranked according to the fulfillment of the set criteria. Thirdly, for instance the best 10%, according to the rating, get finally picked for the portfolio (Scharlau, 2009: 22,23).
Summary of Chapters
1. Introduction: Provides an overview of the rising popularity of SRI post-financial crisis and outlines the study's scope.
2. Definition and Motivation of SRI Investment: Explores the lack of a universal definition and classifies investor motives into value-based and risk-management approaches.
3. SRI Market: Details the historical evolution of SRI, categorizes investment areas, and explains portfolio creation strategies like screening and engagement.
4. Development of the SRI market: Reviews the growth trajectories of SRI investments in major regions, specifically Europe, the USA, and Asia.
5. Performance of SRI investments: Analyzes the three pillars of SRI success: investor activism, social return, and comparative financial performance.
6. Constraints of SRI investment: Discusses the challenges regarding the broad definition of SRI and potential "greenwashing" risks.
7. Conclusion: Synthesizes findings to argue that SRI acts as a meaningful extension to conventional finance, despite definition-related challenges.
Keywords
Socially Responsible Investment, SRI, ESG, Sustainable Investment, Investor Activism, Financial Performance, Ethical Investment, Corporate Governance, Screening, Greenwashing, SRI Indices, Mutual Funds, Portfolio Management, Shareholder Advocacy, Community Investing.
Frequently Asked Questions
What is the core focus of this research paper?
The paper provides a comprehensive overview of Socially Responsible Investment (SRI) and addresses the research question regarding the sustainability and performance of such investments.
What are the primary thematic areas covered?
Key areas include the definition of SRI, market development trends, different strategies for portfolio creation, and the analysis of SRI performance relative to conventional benchmarks.
What is the central research question?
The central question driving the analysis is: "How sustainable are socially responsible investments?"
Which scientific methodology is employed?
The paper utilizes a literature-based review and analysis of existing academic studies, brokerage reports, and industry publications to evaluate SRI trends and performances.
What topics are discussed in the main body of the work?
The body covers the history and categories of SRI, regional market growth (Europe, USA, Asia), and critical evaluations of its financial performance and existing limitations.
Which keywords best characterize this work?
The work is characterized by terms such as SRI, ESG, sustainable investment, investor activism, financial performance, and ethical investment.
How does the author define the "Best-in-class" strategy?
The "Best-in-class" strategy is described as an extension of positive screening where companies are ranked by their fulfillment of specific ESG criteria, with top-performing companies selected for the portfolio.
What are the main constraints identified regarding SRI?
The primary constraint identified is the lack of a universal definition, which makes the concept broad and susceptible to use as a marketing tool or "greenwashing" by companies.
- Quote paper
- Kerstin Strasser (Author), 2011, Socially Responsible Investment, Munich, GRIN Verlag, https://www.hausarbeiten.de/document/184058
