There is a recent trend of fund managers incorporating social and environmental factors in their investment policies in order to meet the client’s ever changing demands. They incorporate ethical strategies for investment portfolios to meet those demands – or in other terms, Socially Responsible Investment (SRI). But the question at hand is, do these different regulations that investment companies set for themselves really control socially responsible investment? Or do they just say it to make their company look good?
First of all, let us define Socially Responsible Investment (SRI). According to Wikipedia, Socially responsible investing (SRI), also known as sustainable, socially conscious, “green” or ethical investing, is any investment strategy which seeks to consider both financial return and social good. The basic idea behind socially responsible investing is to make ethical investment decisions across the board. This can be defined both positively and negatively. The negative definition would be “do no evil,” while the positive definition would more narrowly require investments in companies with a proactive social or ethical mission. Paying attention to social and environmental issues can characterize a business that is well-managed generally.
There are different approaches that fund managers use when taking into account Socially Responsible Investment. Approaches that fund managers may want to consider can be divided into ‘house’ and ‘tailor-made’ approaches. House approaches are based on issues and a strategy developed by the fund manager, while tailor-made approaches entail implementing the client’s own ethical investment policy. Some investment managers decide to combine both approaches whenever they see it fit to use with a unique situation and unique client.
Of course, there are decisions that fund managers need to make whenever they are hired. There are number of areas that they need to take into account whenever they handle clients. But remember, each client that they handle has unique situations that need developing tailor fitted approach. Of course, fund managers need to take into account the resources available, the company’s organizational structures, and how does SRI fit that company’s organizational structure. The SRI approach is to invest in stocks and bonds from those companies and counties or municipalities that promote certain actions or eschew those, which participate in offending actions. Fund managers need to know the ethical policies company has in order to develop their ‘tailor fitted’ house policy to offer the clients.
In conclusion, developing new policies to take into account the environmental, social, and ethical considerations in investment strategies is likely to develop and be continual in the coming years. The different regulations that fund managers incorporate for their SRI needs to be followed thoroughly. They need to make good of that regulation and not just for show, they need to walk the talk. Fund managers need to remember that whenever they do not offer any ethical investment selection and monitoring services, they are losing competitive advantage both in winning and in retaining investment business in the future.