Over my nearly 30 years working as a financial adviser, I have seen a lot of change. For a long time, SRI stood for socially responsible investing. Some advisers and clients still call it that, and they’re certainly not wrong to continue to do so.
However, there is much more to SRI than simply being socially responsible.
Over the years, investors wanted to take a more data-driven approach to responsible investing, making better investment decisions to enhance SRI.
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In 2004, the UN report Who Cares Wins coined the term ESG, saying, “…a better consideration of environmental, social and governance factors will ultimately contribute to stronger and more resilient investment markets, as well as contribute to the sustainable development of societies.” Out of this, ESG data was born.
The problem with ESG data is that it is not standardized, and large asset managers equate the term with sustainability.
Therefore, ESG metrics gauge a company's environmental, social and governance risks and are a best practice to enhance an investment manager’s due diligence. So, ESG helps create a “less bad” portfolio with reduced risk, but it is not necessarily a sustainable one.
The new SRI
Sustainable investing needs to evolve to address the demands of our changed climate, ensure the ability of future generations to thrive, be resilient in the face of climate impacts and lead the way in science and innovation.
Because of this, I believe that SRI has evolved to mean sustainable, resilient and innovative investing.
Sustainability is the concept that the current generation can meet its needs without compromising the ability of future generations to meet theirs. In an ideal world, all generations have the opportunity to thrive.
Sustainable companies focus on resource efficiency, health and equity. From clean energy and EVs to green real estate, electrification and the circular economy, sustainable investments promote a new economy concept.
A changed climate
It’s time to stop using the term "climate change" as a matter of practice. The evidence shows that we are now living with a changed climate.
The devastating impacts of storms such as Hurricane Helene, the uncontrolled wildfires in the West and the rising sea levels show that climate change will not happen in the future. It is here now.
Because of the changed climate, infrastructure needs to be updated and built out to be more resilient and adaptive to this new changed-climate paradigm.
Cities such as Miami and Virginia Beach are regularly experiencing flooding during king tide events. Communications systems went down across western North Carolina during Hurricane Helene and need to be hardened so residents aren’t left without a lifeline during the next storm.
And the prevalence of wildfires in populated areas calls for the development of fire-resistant structures, landscaping and even barriers.
How we deal with the changed climate is just as important as reducing emissions, electrifying the economy and creating equity.
Looking to the future
Innovation defines our generation. Over the past few decades, we’ve seen technologies such as smartphones, MRIs and GPS change our lives and solve some of the world’s greatest challenges.
With the advent of artificial intelligence (AI) and iterative learning, the pace of innovation is likely to continue growing exponentially. The timing couldn’t be better, because without serious innovation, facing the existential challenge of the climate crisis will be very difficult.
Investing in this next level of innovation offers an opportunity to fund technologies that will reduce emissions, transition financial and energy systems and develop cutting-edge medicines.
We’re likely to see game-changing technologies such as fusion power, advanced materials and maybe even a cure for cancer.
The evolution of SRI to a more modern definition of sustainable, resilient and innovative investing is a natural progression of the practice that began in 1760, when John Wesley, the founder of the Methodist movement, gave a sermon entitled The Use of Money. In this sermon, Wesley espoused the concept of ethical gains, saying one should “gain all we can without hurting our neighbor in his body.”
We’ve come a long way since 1760 and now have technologies and challenges that Wesley could never have imagined. Investing in solutions to create a sustainable, resilient and innovative economy is the best way to ensure that future generations will not just live but thrive.
This Earth Day, ask yourself if your investments are contributing to innovation or stuck in the past. Your planet (and portfolio) will thank you.
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