March 8, 2023

Socially responsible investment: an investment combining ethics and finance

Socially Responsible Investment (SRI) is a financial investment that allows you to grow your savings while respecting your ethical, environmental or social values. It forms a separate category of investments that are better defined and better regulated in terms of non-financial criteria (Environment, Social, Governance) than traditional investments.

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The various forms of SRI

Contrary to what you might think, socially responsible investment is not new, and has taken many forms as it has evolved. From its beginnings as exclusion-based SRI to a more inclusive form of investment, it has undergone and is still undergoing numerous developments, notably under the impetus of regulation.

Exclusion-based SRI

The principle of exclusion-based socially responsible investment is to establish a blacklist of companies and sectors of activity that do not comply with certain values.

Historically, this was the first form of SRI.

These exclusion-based funds still operate on the same principle today, which enables you to avoid sectors considered harmful for social, ethical or environmental reasons (such as the fossil fuel sector, for example).

Proactive incorporation of ESG factors in investment decisions

Since the 2000s, companies, banks and states have been assessed on criteria other than their pure financial performance. Environmental, social and governance (ESG) factors constitute a new index to be taken into account in analysing their appeal.

In addition to isolating the lowest rated, the inclusive approach therefore seeks to favour the most virtuous.

This analysis is based on private non-financial rating agencies, which provide analysis on these ESG criteria. Although their assessment criteria are not standardised, they generally draw on the same international conventions, such as the recommendations of the UN, the OECD and the European Union.

In Luxembourg, a label further strengthens the probity of socially responsible investment funds based on ESG criteria: the LuxFlag label.

Foyer’s invest4change insurance product has been awarded this label, which attests to the eligibility of the selected shared and bonds.

Shareholder engagement

A final complementary form of SRI is shareholder engagement, which proposes that you use your investor power to influence company decisions.

By exercising your shareholder voting rights at general meetings, you can influence the target company with regard to withdrawing from harmful activities or positions, depending on your convictions.

Who decides that an investment is socially responsible?

Regardless of its form, SRI may be subject to various supervisory bodies as well as obligations to monitor the impact of investments.

In Europe, European regulation on the disclosure of sustainability information in the financial services sector (known as the SFDR) imposes rules on financial institutions regarding the integration of sustainability risks and the consideration of negative impacts on sustainability.

Funds that have met the EU’s requirements are classified as Article 8.

This is the case for the two funds in the invest4change plan, for which sustainability is an integral part of the investment strategy and processes.

In selecting the assets of companies, banks and socially responsible states, the CapitalatWork Foyer Group experts use an investment

methodology that incorporates exclusion and inclusion principles.

Positive and negative company selection filters are as follows:

  1. Companies that do not comply with the ten principles of the United Nations Global Compact are excluded.
  2. Companies belonging to sectors considered harmful, such as the oil or tobacco industry, are also excluded.
  3. Companies involved in serious controversies due to their negative impacts on society, the environment or governance are also not part of invest4change SRI.
  4. The players selected are those with the best non-financial results.

Then, the traditional work of financial analysis takes over. Socially responsible investments are therefore subject to the same financial analysis criteria as traditional investments. Financial experts assess the risk/reward factor and select healthy companies with high growth potential.

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