Do you want to give meaning to your savings by contributing to a sustainable and environmentally friendly approach?
Socially responsible investing, or SRI, aims to address this by integrating the concept of sustainable development into financial management.
The “SRI” label can be defined as an investment on the financial markets (stocks / bonds) which does not only meet financial criteria, but also environmental, ethical, social and governance concerns. These criteria are commonly knowned as ESG.
The following short video helps you understand the concept and get to know these acronyms: https://bit.ly/2TTE3Yk
Cette stratégie consiste à sélectionner les meilleurs actions et obligations de chaque secteur d’activité, tout en respectant la répartition « standard » de l’économie. On comprend donc que cette typologie de fonds ne se refuse pas d’investir dans des secteurs polluants ou peu vertueux pour la société.
SRI funds are “classic” OPCs (Collective Investment Vehicles) that have received the “SRI” label, thanks to their stock selection process. This label is awarded by a certification body which carries out a detailed analysis of the funds.
These funds are accessible through “Assurance-Vie” contracts, a PEA, a retirement savings contract or via any securities account.
This market is growing enormously with a product offer that is constantly enriched.
What makes SRI funds different from traditional funds?
- The fund management companies select companies with extra-financial objectives (sustainable development)
- SRI funds are labeled by a certifying body
- The importance of certain SRI funds in companies allows them to orient managers’ decisions towards ESG standards
There are several strategies within the SRI label:
- Best in Class (represents 84% of SRI funds): This strategy consists in selecting the best stocks & bonds from each sector, while respecting the distribution of the global economy. Hence, this “Best in class” method will not exclude polluting or unethical sectors, but only select the best players from these less virtuous economic sectors.
- Best in Universe (11% of SRI funds): these funds aim to select the best issuers regardless of their economic sector. The weight of stocks & bonds may diverge greatly from the gloabl economy, since funds linked to the petroleum, chemical, armaments, and other heavy industries will be less represented, if not excluded.
- Thematic (4% of SRI funds): this type of fund aims to focus their strategies on a specific theme such as the environment, social impact, etc.
- By Exclusion (1% of SRI funds): these funds do not invest in companies which have harmful behavior for the environment and for humans (tobacco, armaments, GMOs, nuclear, corruption, discrimination, child labor, etc. .). It is this category that seems to address the demand of the public, and it is the least represented within the SRI label !
We can therefore see that, depending on the strategy, large companies such as Total, Sanofi, Volkswagen or Ryan Air are part of the composition of certain SRI funds, notably best in class.
What about the performance?
According to modern financial theories, one of the primary objectives of investors is to maximize the profitability of their investments while reducing risk taking. This goal is generally achieved through the diversification of investment vehicles.
Because SRI funds exclude securities from their selection, investment opportunities are reduced. We could therefore imagine that this asset class could offer less optimization of the risk / return ratio.
However, others may argue that taking into account extra-financial factors such as social, environmental and governance criteria are virtuous in the long term, since they integrate an overall performance strategy, synonymous with sustainability.
Quantitative studies shed light on this point: to date, the analysis of the performance of SRI funds shows a slight outperformance compared to their benchmarks.
However, the same studies highlight the fact that too strict of a selection leads to a negative impact on the level of its financial performance.
Note: the studies’ results differ greatly according to the investment horizons, and more specifically depending on the different economic cycles.
- Easy to access
- Integrates an ethical & responsible notion to the investment
- Risk of capital loss identical to any traditional fund
- Fees equivalent to a traditional fund
There is a clear craze for socially responsible investments.
These are more and more coveted, with a growing appetite from investors… but above all with a multiplication of the offer! More and more management companies are creating “SRI” or impact funds.
This plethora of offers makes it difficult for the investor to navigate easily, in particular due to the lack of transparency in terms of selection criteria. Responsible and sustainable characters are therefore difficult to perceive.
In France, the SRI label has recently been overseen by the Ministry of the Economy, with certification rules remaining quite complex. In addition, there are many funds hosted abroad, which use the name “SRI” without following the rules applied in France.
This lack of uniformity, and above all of legibility, makes this asset class difficult to handle and requires a keen eye in order to respond to the problem of the client who wishes his funds to be used in a positive manner on society & environment.
Some funds will meet the objective of “responsible investing”, while others will only display the SRI label to enhance their branding. This phenomenon is commonly called “Greenwashing” or “Fairwashing”.
OptiFi therefore recommends to reach to a professional who will be able to take your personal convictions into account in order to support your investment strategy.
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