In previous posts, we highlighted the key characteristics of impact investing and ESG investing. These concepts are often used interchangeably with socially responsible investing (SRI), which is a bigger umbrella term for investments that meet a certain standard of social responsibility.
SRI is an investment strategy based around ethical frameworks, which may be outside the scope of the environmental, social, and governance (ESG) criteria. As such, it would be easy to categorise impact investing and ESG investing under the bigger umbrella of SRI. And while these three investment approaches all seek financial returns while promoting social and environmental good, knowing their differences will inform how you design and make decisions about your investment.
Growing interest in the Philippines
There is growing interest in SRI in the Philippines and throughout Southeast Asia. According to the Global Impact Investing Network (GIIN), the Philippines is the second-largest impact investing market in Southeast Asia, both in terms of amount of capital deployed and number of deals completed between 2007 and 2017.
Aside from impact investing, faith funds and community investing are also gaining ground in the Philippines. Faith funds are a form of ethical investing anchored on specific religious guidelines and doctrines. In a predominantly Catholic Philippines, there is a growing subset of funds that integrates Catholic moral and social teachings into investments, thereby enabling the devout to reconcile their faith with their investment practices.
Community investing, on the other hand, directly funds organisations that work with communities, especially those unable to secure funds from banks and other financial institutions. These organisations usually provide social services to local communities, such as affordable housing and microfinancing. The goal of community investing, beyond the financial returns, is to improve quality of life and to lessen dependence on government assistance. As with other SRIs, community investing is also guided by ethical frameworks and theories of change on how best to support communities towards independence and self-sufficiency.
Positive and negative screening
One defining characteristic of SRI, which sets it apart from impact investing and ESG investing, is how it actively refrains from investing in companies or sectors deemed harmful to social and natural ecosystems. SRI can exclude such companies or sectors with the help of positive and negative screening.
With positive screening, investors actively seek out and invest in companies, stocks, and other financial instruments that have a net positive impact on society—that is, profitable while advancing social and environmental good. At Arowana Impact Capital, we intentionally target small to midsize enterprises advancing livelihood creation, education and healthcare, sustainable urbanisation, and financial inclusion.
Negative screening, on the other hand, filters out investments in contentious and otherwise divisive industries. SRI tends to echo the political and social climate of the time, and, as such, tends to also be politically charged, if not polarising.
For example, climate activists urge investors to stop financing coal and other fossil-fuel companies, as well as sectors that have a high carbon footprint. Some investors are also rethinking their investments in firearms, tobacco, and alcohol, despite their profitability. Even faith-based groups are refraining from investing in companies that do not align with their religious doctrines, which ultimately paved the way for faith funds to emerge.
With an increasing focus on social consciousness, SRI will also continue to grow. In the Philippines alone, according to the GIIN, there has been an increase in impact investing activity since 2014. Additionally, SRI assets under management (AUM) in the United States grew by 38% from 2016 to 2018.
As with other investment approaches, there isn’t a set way of doing SRI. Like ethical frameworks, negative and positive screening only serve as a guide on how best to approach your socially responsible investment. As such, investors are urged to determine their priorities, not just in terms of financial performance, but also the lasting social impact they want to create in the world.
We at Arowana Impact Capital remain committed to growing enterprises whose principles and practices align with our vision of sustainable development to advance social and environmental good.
This is the fourth article in our series on impact investing. In the next instalment, we will explore the different kinds of impact investing happening today.