The last decade has seen increased global awareness of environmental issues. It is because of this awareness that socially responsible investing (SRI) has become more visible and structured as a type of investment. The underlying rationale behind this type of investing is not only to maximize financial returns, but to promote socially and environmentally sustainable development and growth.

Also referred to as value-based or ethical investing, SRI is an investment practice that considers both the positive and the negative social and environmental implications within the context of investment and securities analysis. Asset managers that deal with SRI portfolios often use customary quantitative analysis tools together with social and environmental analysis tools when making investment decisions.

SRI evolved in the 18th century when certain religious groups were opposed to making investments into companies involved with or linked to alcohol, tobacco and weapon production. Over the years the focus shifted. Between 1960 and 1970 the focal point became equality, human rights and environmental protection. In the 1980s much emphasis was placed on the apartheid regime in South Africa and many North American and European investors disinvested from the South African market. In the 1990s emphasis was placed on anti-tobacco investing and poor treatment of workers. During the past decade, environmental issues and the concept of carbon footprinting garnered much attention.

Broadly speaking, there are two main types of SRI strategies that are used to achieve maximum financial return whilst at the same time promoting and achieving social good, namely Core strategy and Broad strategy.

Core SRI is essentially socially responsible investing in its fundamental form. It is premised on detailed screening and analysis on the grounds of ethical, religious or personal values. Core SRI investors will include religious groups, NGOs and even individuals who feel strongly about certain practices or beliefs.

Broad based SRI, on the other hand, comprises a more simplistic approach, involving norms-based screening, engagement and integration. As institutional investors are the main investors in this type of investing, it traditionally has attracted far larger volumes than Core SRI.

Although SRI has become quite prominent in the global investment environment, a number of impediments exist that stand in the way of further growth and innovation of these types of investments, especially in South Africa.

A universal challenge is that even though SRI has been around for a long time, it has no formal standard definition. In South Africa an official definition is needed particularly in the way it would be interpreted with regards to broad-based BEE as it first became prominent during the apartheid era, where trade unions refused to invest their members? pension contributions into companies that supported the apartheid regime or that practiced poor industrial relations. The main focal point of early SRI mediums back then was the issues that related to empowering those individuals that were previously disadvantaged and to improve and enhance their standard of living as well as the opportunities given to them. In order to continue this legacy a clear definition of SRI is important.

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