Growing a profitable and diverse investment portfolio drives investor decisions across the world. Today, investors are aware of the social and environmental impact of business and are choosing to make socially responsible investments (SRI) a priority.
At its core, this investment approach limits exposure to companies that have a negative social impact and seeks to increase access to organisations that do social good. These companies often rank high on Environmental, Social, and Corporate Governance scales - also known as (ESG).
As with any other investment, people who choose ESG portfolios intend to maximise their returns over a certain period of time while keeping the core intent of maximising the social good their capital can do. The ESG lens guides socially responsible investors in choosing the right companies and funds to invest in.
SRI works like any other investment method but brings company ethics and social responsibility into the equation while looking at elements such as sustainable business practices, companies’ treatment of their suppliers and employees, corporate policies, and more.
'According to a survey by Standard Chartered, 74 per cent of UAE investors want to make a difference in the world through sustainable investing, compared to the global average of 65 per cent.'
Do good with your money
Until a few decades ago, the trade-offs for an ESG portfolio were limited at best. Times have changed, and now more lucrative opportunities are available to SRI investors. Hundreds of SRI mutual and exchange-traded funds offer interested investors greater exposure to multiple areas of the market.
Investors can look at both growth and value stocks, large, small, and mid-cap SRI funds, domestic, foreign, and global funds, or choose more diversified funds or only invest in a single sector. According to a survey by Standard Chartered, 74 per cent of UAE investors want to make a difference in the world through sustainable investing, compared to the global average of 65 per cent.
Investors can also choose to make socially responsible investments individually via mutual funds, exchange-traded funds, and index funds. This course of action is both time and labour intensive and requires a deeper understanding of the market dynamics at play.
On the other hand, investors can also utilise the services of an advisor, choose to invest directly, or fund projects that benefit the larger community. A third option is to go for private equity or venture capital or pick from a wide range of SRI products and asset classes such as stocks, cash, and fixed-income investments.
The next step usually entails a little introspection to crystalise our own moral, ethical, and social values and identify causes that we may be passionate about. It could be investing with companies paving the future of sustainable living, female-led companies that believe in the power of diversity and inclusion, or others.
'According to a study by Swiss investment bank UBS, 93 per cent of these investors say sustainable investments are a crucial part of their financial strategy.'
At the end of the day, companies need to be evaluated beyond their financial statements and also measured for their potential to bring positive change in the world. The concept of socially responsible investments has been around for decades but has really taken off in the last couple of years.
It is also garnering major interest in the UAE. Investors in the country see increasing benefits from integrating sustainable investing in their portfolio. In fact, according to a study by Swiss investment bank UBS, 93 per cent of these investors say these types of investments are a crucial part of their financial strategy.
A socially responsible investment portfolio does not mean lower margins or smaller financial returns. These portfolios perform in a similar fashion as non-SRI portfolios and are linked with the financial markets. It is important to recognise that as with other investments, SRIs also carry risk and an investor must still assess the financial outlook of the investment while trying to gauge its social value. An investment which is Socially Responsible does not mean that it will provide investors with a good return.
Past performance and forecasts may not always be reliable indicators of future performance. Therefore, it is essential to assess the risk and financial outlook associated with socially responsible investments as it is with any other form of investment.
A financial advisor can be extremely helpful when it comes to investing. Finding the right FA doesn’t have to be hard. If you are ready to be matched with an advisor that will help you achieve your financial goals, write to us at Clientservice@cfsgroup.com.
Investors want their wealth managers to provide them with the latest technology-led communication and data management, as well as reflecting their priorities on environmental, social, and governance (ESG) issues, in addition to good returns on their investments. Read more on what HNI investors expect from their financial advisors and wealth managers .