Socially responsible investment is an economic and social revolution. Major institutions are becoming aware of the importance of helping to protect the environment, promote social integration, and eradicate poverty. This awareness is now bursting onto the financial scene. Initially considered an investment niche, we are now integrating this megatrend into our management models.
We are, subsequently, in the midst of a paradigm shift from a linear economy that produces, uses, and discards, toward a circular economy that replaces the conventional manufacturing cycle with one that combines competitiveness, innovation, and sustainability, in an effort to use resources more efficiently. One example of this is Inditex (#EDM Inversión, #EDM Strategy) and its circular strategy. The company is increasingly committed to sustainable materials, like organic cotton, which is grown without chemical fertilizers, pesticides, or genetically modified seeds. Its cultivation requires 90% less water and 60% less energy than conventional cotton.
Thus, socially responsible investment (SRI) is a great opportunity to decarbonise the economy since it combines financial performance with the social and environmental impact of investments.
But from an investor’s perspective, what does responsible investing mean?
Historically, some investors vetoed certain sectors for various reasons (mainly ethical), like weapons or tobacco. These days, we no longer talk about industry exclusion; rather, we perform detailed analyses of companies’ internal policies and practices. Not only are the profitability and risk of an investment taken into account, environmental, social, and corporate governance (ESG) factors are also assessed. In other words, apart from economic performance, the money invested should serve to impact society positively and aim to maintain a respectful environmental balance.
At EDM we rigorously assess the ESG factors of the companies in which we invest. Using an objective factor-by-factor rating system, we score each company based on their compliance with ESG criteria.
How do you know whether an investment product respects sustainability?
To gauge whether an investment fund is truly sustainable, you need to understand the type or style of sustainable investment criteria that is applied. This includes, for example, excluding sectors or countries that do not meet sustainability criteria.
At EDM, we include environmental (aligned with EU Taxonomy), social, and governance considerations in our investment criteria to conduct our own internal analysis. We also use various external tools that certify whether a product meets the criteria and aims or intends to uphold ESG standards.
Finally, there are examples of recent “green-washing” practices or attempts to sell a phony image of sustainability. How do we know if a given company is serious about sustainability?
Becoming a green company is not as simple as it may seem. It takes a lot of time, investment, and dedication, which can be challenging for some companies. Instead, they prefer to engage in deceptive practices.
At EDM, we have a socially responsible investment policy (Responsible Investment | EDM), based on a detailed internal procedure that emphasises engagement. We maintain that any information not available in the annual financial and non-financial publications of the companies in our investment sphere is open to enquiry and verification. We also advocate influencing the performance of the companies in which we invest, voting at general meetings, and engaging with companies in order to help improve their practices.
We are confident that the introduction of ESG criteria and its inclusion in investment management may have a favourable effect on companies’ long-term financial results and contribute to greater economic and social progress. Through this commitment, we aim to generate long-term sustainable returns that provide value for our investors and ensure a positive impact on society.