On the 4th of March, the 1st Belgian SIB ( Social Impact Bond) structured and financed by BNP...
Socially Responsible Investment: reconciling performance and positive impact
Putting finance in the service of society as a whole. Socially Responsible Investment (SRI) funds are funds that include Environmental, Social and Corporate Governance (ESG) criteria in their decision-making process. What are the selection criteria used by SRI? What do they guarantee to investors and how should you choose a fund to invest in? Find out below.
Guaranteeing a responsible investment with ESG criteria
Socially Responsible Investing refers to the application of sustainable development principles to financial investments. In addition to financial performance, this form of investing aims to support activities with a strong social and/or environmental value.
To achieve this goal, SRI portfolio management integrates Environmental, Social and Corporate Governance (ESG) criteria into every asset assessment and selection operation. This provides a standard of reliability for investors:
- Environmental criteria assess a company’s impact on the environment (greenhouse gas emissions, water resources or waste, etc.);
- Social criteria assess a company’s impact on employees, customers and suppliers (in terms of human rights);
- Corporate governance criteria assess the company’s organization and management.
Labels to ensure transparency and clarity
Providing a guarantee of transparency and credibility, official labels have sprung up as SRI products grow more numerous—the French government’s SRI or “Energy and Ecological Transition for the Climate” labels, the Finansol label for solidarity finance, and so on. These deliver useful reference points to investors and savers.
By mandating the regular publication of reports, these labels help track the extra-financial performance of investments, based on various indicators: CO₂-emissions savings, number of jobs created, solidarity finance activities, etc.
In this respect, BNP Paribas Asset Management was one of the first asset managers to sign the Montreal Carbon Pledge, an initiative encouraging signatories to measure and track the carbon footprint of their management portfolios.
Approaches tailored to individual needs
Investors in SRI funds can opt for different approaches based on their priorities. For example, a thematic approach privileges targeted investments within a single industry, while the best-in-class approach invests in companies with the best practices in every sector.
The profitability imperative—reconciling performance and positive impact
While SRI enables individuals to invest based on their values and learn more about the impact of their investments through labels, it also meets financial performance targets. Studies show that SRI funds deliver a similar level of profitability to conventional funds. Better still, the oldest SRI index to date, MSCI-KLD 400, created in 1990 in the United States, has consistently outperformed its counterpart, the Standard & Poor’s 500. The LFR Euro Développement Durable fund has grown by 45.3% since 2009, a performance comparable to the Euro Stoxx 50 fund.
SRI’s current success is also tied to sectors targeted by investments. In fact, they frequently invest in today’s high-growth industries: renewable energies, sustainable real estate, SSE, etc.
BNP Paribas Asset Management—a key player in SRI
To enable its customers to pursue meaningful investments and savings, BNP Paribas’s asset management arm has rolled out a wide range of responsible funds on key themes that comply with the principles of the United Nations Global Compact for sustainable development.
Finally, while its traditional clientele is largely institutional, BNP Paribas is now France’s top provider of SRI solutions to individuals, who are becoming much more attuned to sustainable development challenges.
Photos: Header ©EcaterinaLeonte - Content: ©Laura Pashkevich / ©Joshua Resnick / ©GaudiLab
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