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Both SRI and sustainability principles have our best interests at heart, by Tom Cleveland

In our modern era of globalization, capital can freely flow from market to market in search of higher returns. For those investors that also wish to temper their investment choices by doing what is right for humanity and the planet we inhabit, support has grown for directing investments specifically to socially responsible and sustainable enterprises. While both socially responsible investing (“SRI”) and sustainable business operations have our best interests at heart, each movement has had a life of its own for the past few decades, occasionally facing off as to which initiative has real permanent value.

A variety of standards have been adopted across the globe to put proverbial “lines in the sand”. For example, here are two definitions that have gained support in two major markets:

  • In Australia, there is a standard for “Corporate Social Responsibility” that establishes a baseline for social responsibility — “A mechanism for entities to voluntarily integrate social and environmental concerns into their operations and their interaction with their stakeholders, which are over and above the entity’s legal responsibilities.”
  • In Great Britain, there is a “Standard for Sustainable Development” that proposes that a sustainable development is, “An enduring, balanced approach to economic activity, environmental responsibility and social progress.”

The former definition may resemble more a philosophy, while the latter offers more of a measurable process, often encapsulated in the catchphrase of “Triple Bottom Line” – “Profits, People, and the Planet”. While the “social good” may be the implied objective for all corporate policies and procedures in an “SRI” context, sustainability has more to do with meeting current needs without putting in jeopardy any future considerations for economic, environmental, and social issues. Is one term more inclusive than the other or more preferred? Many entities have ignored the debate and combined both terms to describe their initiatives in both areas.

Investment managers have been driven by popular demand to catch the “SRI” wave, so to speak, and have embraced related principles as momentum has grown. Depending on your market of focus, pension fund assets under management in Europe and the United States have rallied to SRI concepts to the tune of $5 trillion, or nearly one out of every six to eight dollars of their total portfolios. Critics complain that funds have buckled under to public pressure rather than economic concerns, but the theory that “Only Mr. Market knows best” has been redefined by adding “within limits”.

Fund managers will typically apply screening tools to select companies that are proactive with regards to the social needs of society, take a leadership position in new green and clean technologies, take pride in treating their employees well, and go out of their way to preserve human rights in all that they do across the globe. At the same time, they exclude any companies that produce products that could be deemed harmful to individuals, communities, or the environment.

Promoting a sustainability agenda, however, involves much more than following straightforward selection criteria. Sustainability is about conserving future resources, but the challenges fall into two primary key areas. First, an appropriate balance must be reached between two conflicting issues – environmental concerns and economic development. Secondly, resources must be preserved in some fashion for future generations. The focal point becomes resource utility and the related rules that develop as a result, which have tended to be complex in design. In practice, lists of indicators have had to suffice, the “TBL” or triple-bottom-line concept.

For the socially conscious investor, the ongoing “battle” between these two factions is irrelevant. Each can deliver the primary goal — peace of mind.

Tom Cleveland is a market analyst at

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