What is impact, ESG, CSR or socially responsible investing?

Impact Investing

Social Investing, " Impact investing " (also described as social, environmental, social and governance (ESG) investing, or corporate social responsibility (CSR) investing) describes a style of investing combining a desire to maximize financial return with an attempt to maximize social good. Many believe social investing began with the Religious Society of Friends, better known as the Quakers. In 1758, the Quaker Philadelphia Yearly Meeting prohibited members from participating in the business of buying or selling humans. Religious institutions have been at the forefront of social investing ever since.

In general, impact investors favor:

According to the Forum for Sustainable and Responsible Investment (US SIF), a nonprofit professional association dedicated to promoting ESG, CSR impact, and socially responsible investing,

" US sustainable, responsible and impact (SRI) investing continues to expand. The total US-domiciled assets under management using SRI strategies grew from $6.57 trillion at the start of 2014 to $8.72 trillion at the start of 2016, an increase of 33 percent. These assets now account for more than one out of every five dollars under professional management in the United States, according to the Social Investment Forum’s 2016 Report on US Sustainable, Responsible and Impact Investing Trends. The Report found

ESG, CSR, social, or impact investing has been growing for some time: "Socially responsible investing (SRI) in the United States experienced robust growth during 2001 and 2002, even as the rest of the investment world was stagnant. Assets in socially screened portfolios climbed to $2.15 trillion in 2003, an increase over the $2.01 trillion counted in 2001."

From 2002 to 2016, growth has been solid. By 2016, the market showed rapid growth: " $8.10 trillion in US-domiciled assets at the beginning of 2016 held by 477 institutional investors, 300 money managers and 1,043 community investment institutions that apply various environmental, social and governance (ESG) criteria in their investment analysis and portfolio selection, and • $2.56 trillion in US-domiciled assets at the beginning of 2016 held by 225 institutional investors or money managers that filed or co-filed shareholder resolutions on ESG issues at publicly traded companies from 2014 through 2016."

  • "The assets engaged in sustainable, responsible and impact investing practices at the start of 2016 represent nearly 22 percent of the $40.3 trillion in total assets under management tracked by Cerulli Associates. From 1995, when the US SIF Foundation first measured the size of the US sustainable and responsible investing market, to 2016, the SRI universe has increased nearly 14-fold, a compound annual growth rate of 13.25 percent."

  • "The total assets that are managed with Environmental, Social and Governance (ESG" factors explicitly incorporated into investment analysis and decision making are valued at $8.10 trillion. Of this total, $8.10 trillion were identified as managed by money managers or community investing institutions, while $4.72 trillion were identified as owned or administered by institutional investors. (The value of the institutional investors’ ESG assets we identified separately was slightly lower than the institutional portion of the overall tally of money managers’ ESG assets under management.)."

  • The US SIF Foundation identified 300 money managers and 1,043 community investing institutions that incorporate ESG issues into their investment decision making. The dollar value of their combined ESG assets is 1.7 times the corresponding figure for 2014, when money managers and community investing institutions held $4.8 trillion in ESG assets under management." See our letter to the US Senate on divestment from the Sudan, for example. On February 1, 2000, Mr. Cunningham wrote to the office of U.S. Senator Samuel Brownback (R-KS) urging him to encourage pension funds to divest from the Sudan.

  • "The significant growth in these ESG assets reflects several factors. These include growing market penetration of SRI products, the development of new products that incorporate ESG criteria and the incorporation of ESG criteria by numerous large asset managers across wider portions of their holdings.Furthermore, the past two years have seen new disclosure on the part of numerous institutional investors and asset managers on how they are implementing the Principles for Responsible Investment (PRI), a global framework for taking ESG considerations into account in investment analysis, decision making and active ownership strategies."

Impact Investing Strategies

Social investors use four basic strategies to maximize financial return and attempt to maximize social good. These strategies are outlined below.

SCREENING excludes certain securities from investment consideration based on social and/or environmental criteria. For example, many socially responsible investors screen out tobacco company investments. This is an example of a social screen at work.

DIVESTING is the act of removing stocks from a portfolio based on mainly ethical, non- financial reasons. An investor divests upon realizing that, at some point, “the cup of endurance runs over, and (is)..no longer willing to be plunged into an abyss of despair” over certain business activities of a corporation. Recently, CalSTRS (California State Teachers' Retirement System) announced the removal of more than $237 million in tobacco holdings from its investment, portfolio after 6 months of financial analysis and deliberations.

SHAREHOLDER ACTIVISM. Shareholder Activism efforts attempt to positively influence corporate behavior. These efforts include initiating conversations with corporate management, or dialoging, on issues of concern, and submitting and voting proxy resolutions. These activities are undertaken with the belief that social investors, working cooperatively, can steer management on a course that will improve financial performance over time and enhance the well being of the stockholders, customers, employees, vendors, and communities.

POSITIVE INVESTING involves making investments in activities and companies believed to have a high and positive social impact. Positive investing activities tend to target underserved communities. These efforts support activities designed to provide mortgage and small business credit to minority and low-income communities.

More Topics in Impact Investing/ESG/CSR/SRI

Corporate Ethics (or the lack therof..)

Corporate Malfeasense

Top 40 Books on Socially Responsible Investing

Other Social Investing Links

William Michael Cunningham

Eduction

  • B.A. (Economics) , MBA (Finance), A.M. (Industrial Organization)

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