What is SRI?

What is SRI?

According to Community Growth Funds, Socially Responsible Investing (SRI) combines investors’ financial objectives with their commitment to social concerns, such as social justice, economic development, peace or a healthy environment. It essentially marries investors’ values with their financial requirements, without jeopardizing the latter.

In South Africa, the primary focus of SRI is the provision of basic services and infrastructure development. Secondary to this is the screening of companies in accordance with environmental, social and corporate governance criteria.

Community Growth Funds (CGF) segment the SRI universe into three categories:

Targeted Investing

Targeted Investing is cause-based and characterised by selecting particular investments to achieve a particular objective. These are defined in the Financial Sector Charter as being debt financing of, or investment in, transformational infrastructure projects that support economic development in underdeveloped areas, and contribute towards equitable access to economic resources in the following sectors:

  • Infrastructure (roads, dams, schools, bridges, hospitals, sewerage, water and electrification)
  • Agriculture (poor black farmers)
  • Low-income housing (household income levels of less than R1 500/month)
  • Small, medium-sized and micro enterprise financing

Screening

Screening can be divided into three categories: negative, positive and best of sector. When negative screening is implemented, investors refrain from investing in companies producing ‘undesirable’ products or services, as well as those operating in ‘undesirable’ industries. This could include a Shari’ah (Islamic Law) compliant fund, or exclusion of tobacco, alcohol, or arms-related investments, for example.

On the other hand, when positive screening is employed, companies that are perceived as good corporate citizens and prioritise  environmental, social and governance (ESG) issues, are included in investor’s portfolios.

Best of sector screening combines both positive and negative screening methods, thereby not excluding all companies in a certain industry, but including businesses that are attempting to improve their ESG performance.

Shareholder Activism

Shareholder activism implies that shareholders actively engage with management on a range of ESG issues, through the use of their voting rights at annual general meetings, and engaging in direct dialogue. This can also entail divesting from companies that fail to transform their ESG practices.

Community Growth Funds incorporate all these categories in their investment decision-making process.