SRI, ESG, and me: The alphabet soup of sustainable investing

A brief history of sustainable investing

While many investors think that sustainable investing (at least in the U.S.) has been en vogue for just the past few decades, it actually began in the 1700s, when various religious sects forbid their followers to transact with people or businesses that were involved in ethically-suspect activities, such as slavery, gambling, or liquor or tobacco manufacturing.

Fast-forward to the 1960s and 1970s: anti-war investors began avoiding companies that produced biochemical warfare agents, such as napalm. The first sustainable mutual fund—the Pax World Fund—was launched by two United Methodist ministers who didn’t want their church’s investment portfolio to include any companies that contributed to the Vietnam War. 

Over the next decade, fossil fuels and apartheid came to the forefront as sustainability issues. In 1986, the U.S. government passed a law that prohibited new investment in South Africa. Following the Exxon Valdez oil spill disaster in 1989, environmental activists, investors, and businesspeople came together forming the nonprofit Ceres (the Coalition of Environmentally Responsible Economies). By 1994, investors who were interested in sustainability had more than two dozen mutual funds to choose from, mainly exclusionary in nature, and often referred to as Socially Responsible Investing (SRI) at the time.

The new millennium

In 2006, the United Nations’ Principles for Responsible Investing (UN-PRI) was formed. Today, this initiative of international investors follow voluntary guidelines for incorporating sustainability into investment practices.

Meanwhile, with more and more companies reporting sustainability data and information in annual reports, 10-Ks, sustainability reports, and to third parties such as CDP, investors have more information available to incorporate into their investment processes and decisions. 

According to The Forum for Sustainable and Responsible Investment (USSIF), there are several different approaches to incorporating sustainability in your portfolio.

Exclusionary

Exclusionary investing is all about avoiding investments in certain sectors of the economy (such as tobacco, weapons, or gambling). At the individual level, it involves selecting a range of investing criteria aligned with your personal beliefs. 
    
    May be known as: negative screening, exclusionary screening, divestment, SRI 

ESG integration 

This approach doesn’t mean simply avoiding investments based on unwanted criteria. Instead, ESG integration involves including financially relevant sustainability insights when investigating and choosing investments. 
    
    May be known as: ESG investing, positive/best-in-class screening, norms-based screening

Impact investing

This approach involves making investment choices with the goals of creating positive and measurable social or environmental impact (along with strong portfolio returns). 

According to the Global Impact Investing Network (GIIN), impact investing combines investor intentionality, setting return expectations that fall within a particular range and that apply to various asset classes, and committing to measuring the social and environmental performance of the investment.
    
    May be known as: impact investing, thematic investing, community investing

What about you?

Which approach best aligns with your investment goals? Learn more about our sustainable investing capabilities and insights.

Information provided by SEI Investments Management Corporation (SIMC), a registered investment adviser and wholly owned subsidiary of SEI Investments Company.