What is the New SRI?
Thanks to our partnership with Wespath Investment Management, the Georgia United Methodist Foundation is uniquely qualified to provide a performance-oriented approach to investing the assets of United Methodist churches and ministries that are in alignment with the Social Principles of The United Methodist Church.
Wespath, a general agency of The United Methodist Church, manages over $3 billion on behalf of its 119 institutional clients, in addition to the over $18 billion managed for its benefit plans. In this FAQ, Kirsty Jenkinson, who leads Wespath’s Sustainable Investments Strategies team, explains how the new SRI drives their sustainable investment activities, supports long-term value creation, and positively impacts the environment and society.
GUMF: What is the difference between Socially Responsible Investing and the new Sustainable and Responsible Investment?
Kirsty Jenkinson: For many years, religious and other values-based investors have avoided investments likely to directly or indirectly support activities that were deemed unethical or provided harmful services. Applying these types of ethical exclusions—or social screens—became known as Socially Responsible Investing or “SRI.”
Today, a new breed of investors is beginning to exert its influence across the investment landscape. These forward-thinking investors universally acknowledge that long-term value creation requires a recognition and acceptance that environmental, social and governance (ESG) factors must be considered to ensure the sustainability of any investment.
The new SRI—Sustainable and Responsible Investment—is not just about excluding or screening based on an investor’s moral or ethical beliefs. Rather, it is analyzing the extent to which ESG factors will affect long-term performance and actively promoting policies and practices to thwart the adverse consequences of unsustainable activities. We apply our internal framework of Avoid-Engage-Invest to guide elements of our sustainable investment strategies across our assets.
GUMF: How does the internal framework of Avoid-Engage-Invest drive Wespath’s sustainable investment strategy?
Kirsty Jenkinson: Avoid refers to the exclusion of elements in companies that violate the ethical principles set by the Church. We exclude securities in industries with core businesses involved in alcohol, tobacco, adult entertainment, gambling, weapons, and privately operated prisons. We also exclude companies that pose a significant financial risk to our funds because of unsustainable business practices related to climate change and to human rights.
Engage is the heart of our sustainable investment strategy. We use our voice as active shareholders to influence corporate behavior and public policies on environmental, social and governance issues. We have a seat at the table with global companies, and we have successfully influenced firms to tackle child labor issues, promote sustainable farming practices and improve supply chain management.
Invest refers to how we put the assets we manage to work in an effort to promote transformative change. Our Positive Social Purpose Lending Program is a prime example. For over a quarter of a century, Wespath has invested in some of the most disadvantaged communities in the U.S. by purchasing market-rate loans that support affordable housing and other services. We are in the privileged position to work with the assets entrusted to us to seek positive financial, social and environmental change.
GUMF: Does “Doing the Right Thing” lead to better performance?
Kirsty Jenkinson: Most investment managers strive to attain the highest possible investment returns given their investors’ risk tolerance and investment time horizon. Investing in companies with a clear competitive advantage, such as the ability to generate higher revenues by continuously introducing innovative products and/or services and maintaining lower cost structures, often leads to strong investment results.
According to a Deutsche Bank Climate Change Advisors review of over 100 academic studies of sustainable investing, 100% of these studies show that companies with high ratings for corporate social responsibility (CSR), or their management of ESG factors, had a lower cost of capital—thus considered less risky—than companies with lower ratings. The report also noted that 89% of companies with high ratings for ESG factors exhibited higher returns than companies that did not have high ratings on these factors.
This article was originally published in the Summer 2017 edition of Faith & Money, a publication of the Georgia United Methodist Foundation.