It is time for socially responsible investing to both triumph and die. The Pacific Salmon fight their way upstream, navigate through bears looking to rip them to shreds and literally eat them for lunch and swim against the tidal flow with a goal of spawning the future. After successfully reaching the top and spawning, these salmon then die, having achieved their life's mission. This too is the necessary end game for socially responsible investing (SRI).


Born in different places for different reasons, SRI rose in response to the horrors of Apartheid, as a protest to the Vietnam war and for ethical concerns that match religious values, and continues to be issues driven on many ESG (environmental, social and governance) areas of serious concern.

A long and laborious history has ensued with socially responsible investors, especially those in the US, largely enabled through the organization US SIF, marketing and positioning themselves as "other" than the mainstream.

In effect, if you are a normal investor, and you see the need to factor in environmental or social risks and opportunities, you have needed to think of this as an outcast mentality or a political exercise.

Even though it hasn't been true, the assumption has been that one will potentially leave returns on the table if investing with their values in mind first and foremost. What we have instead found in our writing and analysis that a value first approach to SRI has outperformed, but due to the majority of SRI assets being values first in nature, this outperformance is largely not experienced, and most mainstream investors continue to look the other way, again because this is an "other" approach to business as usual.

Instead, as we wrote in our three books on the subject, we need a form of sustainable investing, which is positive, future oriented and opportunity directed, mindful of social and environmental considerations, to become the new paradigm for all investors.

Therefore, this needs to happen at scale and through mainstream practice and approach.

And so it is time to just think of all investing as just that - investing. There is no "other," instead, there are good investors and bad, investors who engage with companies and those which do not, active investors and passive ones, and those who hedge their risks or do not, and there are also those who consider environmental and social factors in different ways, with different levels of seriousness.

Anyone wishing to divest from sectors of disinterest are free to do so, and should, but this too is an unhelpful approach from a strategy perspective. All of this instead needs to become the new business as usual.

To change the inexorable march we are on towards the sorts of catastrophic risks identified in the World Economic Forum's 2014 Global Risk Report, such as climate disruption, fresh water shortages, food crises and inequality, such considerations need to be brought into all investing considerations with seriousness in consideration for timeframes, asset allocation and a multigenerational sense of fiduciary duty. Investors need to find ways to collaborate around the difficult issues such as investing in an energy transition, when one investor cannot do enough on their own. This too needs to become standard practice.

The world remains largely using an 80% fossil fuel mix in energy, as it has for the past 25 years, and resource constraints loom ever closer, and so we march on with short-term frames on corporate profit and investor returns, unable to break the lockstep to serious problems. It is time to solve problems with capital at scale across all categories of asset ownership.

Exciting trends in the mainstream are being seen on fixed income, through so-called "Green Bonds" and other forms of infrastructure financing, but much more capital is needed, as is also needed in the early days world of Impact Investing, B Corporations and similar.

Of course, I'm intentionally overstating the case on the death of SRI to make a point. A race is on for who can help solve these problems at scale, from a top down and bottom up perspective, and that's healthy. But what is needed is capital and solutions deployed at scale, leaving no stone unturned and no investor behind. Too many mainstream financial professionals are untrained on these issues and many other challenges remain, but the days of SRI being seen as other need to end. Institutions need to be challenged if they are not providing solutions and training themselves on these issues.

Environmental and social considerations are too important to not be solved at scale, and all hands need to be on deck for this to become the new business as usual.

This actually should be the dawn of the golden age of SRI if you think about it. SRI will never take over all of finance. As was written in our first book on Sustainable Investing in 2008, it is much easier to train a financial analyst in ESG than it is to train an environmentalist in finance. But SRI needs to no longer be seen as "other," and envisioning how this can actually happen so that capital can be deployed at the scale necessary is in some ways the new imperative.

It is time to spawn and die.

 

(originally posted at LinkedIn)