Socially responsible investment or (SRI) is an investment philosophy which, as well as taking the profitability and the risk of an investment into account, assesses environmental, social and corporate governance factors (also known as ESG). In other words, it not only analyses the economic performance of an investment but also seeks to ensure that the money used serves to have a positive impact on society, while maintaining a respectful balance with the environment.

Both in Spain and in the rest of the world, sustainable and responsible investment is articulated primarily through collective investment instruments (investment and pension funds), but this philosophy can be applied to all types of financial products.

What are the characteristics of SRI funds?

Socially responsible investment funds are those that combine financial and non-financial analysis factors in their management, known as environmental, social and corporate governance (ESG) criteria.

Like any other type of fund, one that follows the SRI philosophy can be made up of different types of financial assets or a combination of them (currencies, bonds issued by public and private entities, shares, etc.) and offers the same characteristics in terms of liquidity, security, transparency, taxation and professional management.

When choosing an SRI fund, it must be taken into account that they are not all the same. Management companies can use a strategy with an environmental, social or corporate governance focus or combine several of them to define the composition of the portfolio.

How to invest in SRI funds

The most common strategies for SRI fund management are:

  • The exclusion of specific companies or sectors on the grounds of being controversial or unethical, depending on the SRI mandate of each fund.
  • Integrate ESG analysis with traditional financial analysis to define the asset portfolio.
  • The selection of the best companies in each sector (best in class) according to the ESG policies they apply to their business.
  • Investment in assets that comply with international treaties, avoiding those companies or governments that do not comply with international regulations.
  • The selection of assets focused on a specific sustainable and/or responsible issue such as climate change, equality and sustainable bonds or water.

Some governments, such as France, have developed official seals that certify that a fund invests in compliance with ESG criteria.

These seals or labels allow investors to quickly identify that the funds meet environmental, social and governance criteria when managing the investment; however, if a fund does not have an SRI seal it does not necessarily mean that it does not apply any of the above strategies.

In Spain, for example, there is still no official certification that identifies SRI funds, so the safest way for investors to identify them is to refer to the prospectus or the DFI. This document, reviewed by the National Securities Market Commission (CNMV), contains the investment policy and details of the composition of the portfolio of a fund.

When you read the prospectus, you will see, for example, that some funds exclude from their portfolio companies that manufacture landmines or cluster bombs, while they choose to include others that promote ESG better practices.

Why is Sustainable Responsible Investment growing?

The demand for SRI investments has traditionally been from institutions, large pension funds, universities, insurance companies and public bodies. However, there are increasingly more individual investors who are looking for assets that meet ESG criteria as a way of channelling their savings and showing their commitment to and awareness of the environmental and social impact of companies.

Furthermore, according to the Spanish Forum for Responsible Sustainable Investment (Spainsif), this type of investment is just as profitable as traditional ones in terms of risk and return, with the added bonus that it also aims at social benefit.

By integrating environmental, social and corporate governance criteria into the investment analysis, the asset portfolio is made more efficient in terms of risk-return, as investment is avoided in companies that may be involved in, for example, corruption, environmental or human rights scandals.

The stability of a company and its social and environmental commitment benefits both its shareholders and its workers, as well as the entire supply chain with which it is related. And this, in the long term, is advantageous for the profitability of the investors.

If you are interested in these types of investment products, here you can discover the range of sustainable funds available with Banco Santander.


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