Socially Responsible Investing: How can SRI promote environmental stewardship?

In the previous chapter, we reviewed the three primary SRI strategies - social screening, proactive investing and shareholder advocacy. We'll now explore how one issue, environmental stewardship can be promoted using each approach.

Many stakeholders, including customers, investors, employees, regulators, activists, labor unions and the media regard environmental stewardship as a key component of corporate social responsibility.

Environmental awareness among the public is higher than ever as issues like climate change take center stage. Consumers are increasingly concerned about the environmental impact of products (e.g. the extraction of raw materials, pollution generated during production and use, and recyclability). These concerns also apply more broadly to the companies generating those products and services.

While government commitment to setting stricter environmental standards and funding the development of alternative energy sources has ebbed and flowed, SRI has been addressing the topic for many years.

Let's look a bit more at each of these strategies:

• Social Screening. For investors wanting to emphasize companies with best-in-class environmental records and avoid laggards, social screening is an option. By analyzing data about things like a company's environmental footprint, its policies on the environment and record of regulatory actions, investors can build a portfolio of stocks or bonds at least partly around these results.
   
• Proactive Investing. Increasingly, investors have the ability to proactively invest in companies that provide creative solutions to environment problems. The types of investments can produce competitive returns in addition to environmental goals such as reducing raw material usage, brownfield development, and increased use of sustainable building materials.
   
• Shareholder Advocacy. Shareholders have increasing opportunities to vote on environmental issues at public companies related to environmental policy. Would you vote to have a company disclose more about the impact on the environment from its operations, or disclose its future risks and opportunities related to global warming? Shareholder Advocacy and, in this case, the tool of proxy voting are an important strategy for engaging with corporations about viewing environmental issues more broadly and strategically.

These types of SRI strategies work in different ways but all are in some way leveraging the environment as a key issue in the investment process. Which of these strategies works for different types of investors depends on what an investor wants out of SRI and on how broadly the investor wants to adopt these strategies. Importantly, there are options within each that will dually provide competitive returns and positive social or environmental impact.