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Friday, March 24, 2023

College 101: SRI Strategy Skyrocketing Since 2007

I need some help with a class assignment. I’m in an Introduction to Investment Management class, and each week students are given a topic to present. Topics can be almost everything. Last week, my friend was assigned cryptocurrency as a viable investment opportunity. He got to discuss a recent ICO and how it differs from the more recognizable IPO. Then he got to discuss the prevalence of ICO scams.

This coming week is my turn and I was assigned SRI strategy, or socially responsible investing. Having done a little research, it isn’t nearly as exciting as cryptocurrency and the implications aren’t the easiest to break apart. Should I compare and contrast it with other strategies and then discuss the stock performance? I just need some general direction, since the presentations can only last 5 to 7 minutes.

While socially responsible investing might not seem as immediately compelling as something akin to cryptocurrency, it’s by no means a dull topic. It’s also important to remember that since this is about investment strategy, you can either delve into the technical details or paint a generalized portrait. Having only 5 to 7 minutes to present the subject means the latter option is probably the safer approach. The audience can investigate the minutiae if you successfully inspire their genuine interest and curiosity.

You might consider beginning your presentation with the definition. The Forum for Sustainable and Responsible Investment defines sustainable, responsible, and impact investing (SRI) as an investment discipline that considers official environmental, social and governance (ESG) criteria to generate long-term financial returns and positive societal impact. The crux of the discipline favors making a profit while still contributing to a better future for everyone. It’s worth noting to your audience that things have changed dramatically in the past decade.

One author at The Atlantic originally wrote that “socially responsible investing is neither profitable nor as responsible as advertised,” before eventually declaring the practice “niche.” The prevailing mentality at the time was that a successful investment portfolio couldn’t afford to exclude stock options because of ethical violations without undermining long-term performance.

Flash forward to August 2017. A Forbes contributor relied on Morningstar data to demonstrate that investors earned better returns from good companies. In other words, investment decisions guided by ESG ratings produced consistently superior outcomes. This should make intuitive sense. More and more businesses are beginning to admit responsibility and take action with the right things in mind. Investors and customers are increasingly acting with their financial decisions, which is helping to shape the investment landscape. That’s why we’re seeing such radical growth in SRI.

The narrative doesn’t end there. Exploring research for sustainable investing will yield further insights and related current events. For instance, you could briefly review the growth of the five largest socially responsible funds in the US. It’s unlikely anyone has a realistic grasp of how much capital investment is happening with SRI as a driving force. Those numbers have implications for investors, businesses, and customers at large. The prevailing mentality is now that doing the right thing pays off in the long-run.

“Successful people have a social responsibility to make the world a better place and not just take from it.” -- Carrie Underwood

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