We live in a world where we are faced with an unprecedented number of choices – from the type of creamer to put in our coffee (milk, oat, almond, or soy), where to live and work (remotely or commute), to how we invest our money.

Sustainable and Responsible Investing (SRI), often used synonymously with Environmental, Social, Governance (ESG) integration, has seen a meteoric rise in popularity in recent years as people consider not just what their money is earning, but how their money is affecting the world. Conscious-minded investors desire for their money to perform well while also doing good.

Unfortunately, the world of SRI can be confusing. If SRI is of interest to you, it is essential to arm yourself with basic information before you dive in to make sure that your goals are being met.

The Cornerstone of SRI Investing
The goal of SRI investing is to generate competitive financial returns and positive social impact.1 There are a variety of terms for this type of investing including SRI, ESG, and Impact Investing that are used synonymously but have slightly different definitions, depending on what source you are referencing.

For purposes of this article, we will use The Forum for Sustainable and Responsible Investment’s (United States SIF) definition of SRI. They consider sustainable investing to be an investment discipline that considers environmental, social, and corporate governance (ESG) criteria to generate long-term competitive financial returns and positive societal impact.

Although it has been getting press recently, SRI has been around a very long time. Members of the Quaker church (dating back to the mid-17th-century England) were prohibited from investing in businesses that were harmful to the health of themselves or their neighbors, such as alcohol or gambling.

Of course, SRI has grown and evolved over time. In the 1980s a major SRI focus was avoiding exposure to blood diamonds and South Africa during Apartheid.

Today, there is a wide array of funds that follow an SRI mandate, so the first (and perhaps most challenging element) of SRI investing is to define what it means to you, the investor.

  • Are you attempting to avoid specific industries (such as tobacco and pornography)?
  • Do you wish to invest in companies that are “trying” to be better or who are not “evil”?
  • Do you want to proactively invest in a certain sector such as sustainable technologies?

The United Nation’s 17 Sustainable Development Goals2 can be a useful tool to begin articulating your SRI objectives, and many SRI strategies will refer back to these goals in their analysis.

Source: United Nations Sustainable Development Goals

A financial advisor can be a useful resource for helping explore and define your SRI goals.

With that said, there can be limitations to SRI investing. For example, if you seek to invest in companies owned by women, there are going to be issues with investing in publicly traded companies, which are owned by shareholders of both sexes. However, it is possible to invest in companies with women in leadership roles and that are taking action to address the gender gap.

Finding the Right Fit or SRI Method

There are several strategies for implementing SRI objectives and many funds will utilize the methods discussed below.

One of the most common methods is negative screens. Negative screens mean that a manager will not invest in a particular sector or industry offering what is known as “sin stocks” (e.g., alcohol, gambling, tobacco, firearms, etc.). Positive screens look for the “best of breed” companies in a given industry that may lend themselves well to passive investment strategies.

ESG integration is currently the most common method of SRI investing in the US. It involves an additional layer of investment analysis that considers material Environmental, Social, and Governance factors.

Source: Principles for Responsible Investment

This method is popular because it does not explicitly exclude any industries and invests in companies that are actively seeking to improve. There are also compelling arguments about the risk mitigation benefits from ESG integration.

Another method is impact and thematic investing.

In thematic investing, a strategy may invest in a particular theme, such as a fund that invests in companies with women in leadership roles.

Impact investing allows direct participation in a particular industry or cause such as providing loans to build affordable housing.

Finally, another method is personal expression. You may consider investing directly in a company about which you are excited.

It should also be noted that SRI investing may be limiting – and sometimes the best way to make an impact could be to donate to a charity that is doing the work you are passionate about.


SRI investing is not without challenges. The industry is relatively unregulated, so not only are there a lot of terms used interchangeably that have different definitions depending on whom you ask, there are also challenges with data and measuring results.

There are rating agencies, such as MSCI, a leading provider of critical decision support tools and services for the global investment community and Sustainalytics, that provide data.

However, there is not much standardization across these agencies, in terms of:

  • Required reporting
  • What strategies one can call themself (e.g., green, SRI, etc.)
  • How the success of these strategies is measured

Anytime you are looking at an SRI strategy, it is crucial to read the fine print to ensure that it meets your own personal definition of SRI investing. In addition, it is important to determine how the strategy is implementing and measuring the results. There has been criticism of certain strategies that brand themselves as “green” or “sustainable,” but do not actually deliver the promised impact. This space is trendy, and the definitions are loose, so do some research before investing in any particular strategy.

Through SRI strategies, individual investors are coming together and having an impact. The interest in SRI is pushing companies to reconsider their carbon footprints and managers are engaging in active dialogue with companies about how to improve.

We see this shift every day in the news. Most recently, Starbucks announced it is moving away from disposable cups, Chevron is investing in electronic charging stations, and large companies are seeking to diversify their boards.

The future is hopeful and SRI strategies provide investors with an opportunity to participate and make a difference.

Roehl & Yi Investment Advisors can assist you in your financial decision making and help you determine which path may best meet your needs.

Written by: SARAH MELLGREN, JD, CFP®, Roehl & Yi




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