Within the broad framework above, the issues of particular interest to SRI investors ebb and flow over time. Below we review five trends that will be of interest to companies wishing to communicate to SRI investors:
- Products and processes
- Concept of ‘continuous improvement’
- From ‘ethics’ to ‘sustainability’
- From ‘normative’ to ‘investable’
- Climate change is critical
Products and processes
SRI investors are interested in both how companies manage the environmental and social impacts of:
- The products and services that they supply
- The processes that they deploy to produce them
Investors’ interest will vary between the two categories according to where the greatest social or environmental impact lies and/or to where the greatest potential for impact on a company’s financial performance lies.
Concept of continuous improvement
Outside of the inevitably absolute ‘ethical’ issues, SRI investors are quick to credit companies for improvement and the reduction of negative impacts and promotion of positive ones. They are keen to see improvement trends reflected in both in the impacts of companies’ products and processes. Companies should prepare to discuss both past improvement and future plans.
From ‘ethics’ to ‘sustainability’
Over recent years, there has been an incremental shift from ‘ethics-focussed’ SRI to ‘sustainability-focussed’ SRI. This is most noticeable in Europe where, outside a narrow range of ‘ethical funds’, there is very little interest in what could be classified as ‘ethical’ issues. Even in the USA where the ethical component has traditionally been very strong, a broader ‘sustainability’ agenda has been emerging strongly in recent years.
From ‘normative’ to ‘investable’
There is a continuing trend in SRI analysis towards investment-focussed outcomes. Although traditional approaches to evaluating the inherent responsibility of a business remain and have value for a variety of investor groups, a greater number of SRI analysts are now looking for ‘sustainability analysis’ that can inform and support the valuation models and investment strategies of their financial analyst colleagues and portfolio managers. We cover this in detail in the section below on ‘Mainstream’ investor interests.
Climate change is critical
The magnitude and immediacy of the climate change challenge has lifted it to a position of prominence for many SRI investors and one that arguably occupies half of the analysts’ time. In addition, a growing number of institutions manage specialist ‘climate change’ funds. While these can focus on companies that deliver specific climate change solutions, they often also seek exposure to the broader range of companies that are adjusting their own activities to mitigate and/or adapt to climate change. Accordingly, this is an area that all companies should address.
