Socially responsible investing (SRI)
Socially responsible investing is – at its core – an enhanced way of looking at needs and opportunities. Ultimately, it is a way of conducting business that we believe makes us smarter, better investors.
Governance of Socially Responsible Investing
Socially responsible investing (SRI), also known as sustainable or ethical investing, is any investment strategy which seeks to consider both financial return and social good. In general, socially responsible investors encourage corporate practices that promote environmental stewardship, consumer protection, human rights, and diversity. The areas of concern recognized by ThomasLloyd as SRI practitioner are summarized under the heading of ESG issues.
We seek to reduce risk and find value by managing ESG issues, knowing that socially responsible investment is not a destination, but instead an area of continuous improvement for our Firm. At ThomasLloyd, we have put in place people and processes intended to answer these fundamental challenges. Socially responsible investing at ThomasLloyd is integrated across all relevant investment and governance practices. Over the years, we have constantly strived to enhance our approach to responsible investment and have developed our own Socially Responsible Investment Policy and Methodology. This framework is consistently applied to each investment opportunity and ensures that ESG factors are integrated throughout the entire investment cycle.
Our Socially Responsible Investment Policy
Socially responsible investors use several strategies to maximize financial return and attempt to maximize social good. These strategies may satisfy the ethical principal of non-harming, by avoiding investing in businesses involved in e.g. alcohol, tobacco, fast food, gambling, pornography, defense/weapons, animal testing, contraception/abortifacients/abortion and/or fossil fuel production. However, with the exception of solutions investing, they do not necessarily create positive social impact and therefore doing only negative screening is inadequate. Positive screening instead pushes the idea of sustainability, not just in the narrow environmental or humanitarian sense, but also in the sense of a company's/project´s long-term potential to compete and succeed.
Solutions investing is defined by ThomasLloyd as conventional investments made in companies/projects that have an intentional focus on solving a societal challenge, include ESG management as core to the business, and seek traditional returns for the asset class. Investing in infrastructure is for all the characteristics of the asset class therefore one of if not the most prominent sample of solutions investing. By investing directly in stand-alone infrastructure projects, rather than purchasing stock, an investor is able to create a greater social impact: Money spent purchasing stock accrues to the stock's previous owner and may not generate social good, while money invested in such a project is put to work.
Guided by our knowledge of global and regional issues, we work as a team to realize sustainable values. Our Socially Responsible Investment Policy is influenced by many of the world’s most pressing needs, which affect our projects, clients and other stakeholders in both direct and indirect ways. By cultivating internal expertise and partnering with third-party experts, we work to understand both national and local issues that have the greatest influence on the focus areas of our Firm, and the projects in which we invest. We aim to address those areas of focus in two primary ways: by avoiding and mitigating risk wherever possible, and by discovering ways to create value. The result is a pathway for creating sustainable value – value that benefits our clients and the beneficiaries they represent, our Firm, and the communities in which our projects are located.
ESG Integration Methodology
ThomasLloyd´s ESG Integration Methodology describes how we invest socially responsibly, how we use our investment skills to positively contribute to society beyond our core investments, and how we maintain high standards of corporate governance to secure the long-term success of our business. Our ESG-related due diligence starts when an investment opportunity is identified. Our teams consider sector- and region-specific issues, the unique framework conditions of each project, and reputational risks when evaluating these opportunities.
After an investment has been made, the teams monitor and manage a broad range of ESG issues at the project and cross-portfolio levels. Our approach to integrating ESG factors in all investment types is also informed by leading external standards. Based on its reputation, we employ the UN Global Compact's principles as a reference for the standards that our direct investments should meet.
In 2015, Morgan Stanley conducted a review of 10,000 funds and concluded "strong sustainability" investments outperformed weak sustainability investments, tackling the idea of a trade-off between positive impact and financial return. While the Global Impact Investing Network's 2015 report on benchmarks and returns in impact investing in private equity and venture capital found market-rate or market-beating returns were common in impact investments.
ESG Challenges and Opportunities
Biodiversity, Carbon and Greenhouse Gas Emissions, Land Use, Natural Resource Scarcity, Priority Chemicals, Water Scarcity
Consumer Protection, Data Privacy, Employee Engagement and Labor Relations, Health and Safety, Human Rights
Anti-fraud and Anti-corruption, Board Composition and Independence, Ethics and Integrity, Regulation and Public Policy, Stakeholder Expectations, Transparency