The value of socially responsible investment

  • Investment management
  • 3 minute read
There is a rising tide of interest in investment that matches the social and ethical values of investors – this in itself is certainly a good thing. Historically, this need has been met by negative screening. In other words, by not investing in stocks that were deemed to have a negative social, environmental or health impact. Portfolios run in this way are typically called ethical portfolios.

This strategy addresses the need to align social values, but only by reducing the universe of allowable investments. Increasingly, we see interest from clients in going beyond this ‘ethical negative screen’ to an investment process that seeks companies that are having a positive social impact.

This evolution is generally known as socially responsible investment (SRI). SRI has shifted away from simply negatively screening ‘areas to avoid’, towards active, positive impact screening and social risk evaluation. Demand for this form of SRI is growing fast, with the market size increasing to US$23 trillion globally in 2017 (source: Global Sustainable Investment Alliance) – and is fast replacing ‘ethical’ as the mandate of choice for values-based investing.

Close Brothers Asset Management (CBAM) addresses this need through our SRI Service, where we aim to deliver a client’s return objective at a risk level that is suitable to circumstances, but through a portfolio aligned with social responsibility. Close SRI portfolios are segregated, discretionary portfolios, invested where possible in direct securities to provide greater transparency and lower cost.

The SRI investment framework is based on the 17 United Nations’ Sustainable Development Goals (Goals), which are in turn categorised into four impact and investment themes. These are Social Empowerment, Environmental Protection, Health, and Economic Advancement. We believe these themes resonate with our clients. As an example, analysts at the Organisation for Economic Co-operation and Development have predicted that by 2050, global demand for food will have increased by 70% due to population growth and higher incomes. But, health issues such as obesity and malnourishment are estimated to result in a global economic cost of US$3.5bn per year. Companies that improve access to healthy eating for that matter, healthcare, education, cleaner energy or the internet, or that innovate in ways which improve people’s standard of living, are doing their part in solving global issues for billions of people.

Our investment process screens out companies that do not align with the Goals (‘negative screen’), whilst positively identifying investments that promote the Goals, either through the products or services they make (‘impact’) or how they conduct themselves as firms (‘ESG’ criteria). The resulting ‘SRI universe’ then undergoes the same deep, fundamental assessment of value and attractiveness as all of our investments, to create the ‘buyable SRI universe’ from which our SRI portfolios are built. With a directly invested portfolio, clients have complete clarity of their holdings and the portfolio can be tailored to reflect their specific values.

Investing responsibly does not mean sacrificing potential returns. We believe that companies committed to improving society make attractive and sustainable investments. Considering ESG factors is now embedded in our direct equity research, delivered by our team of research analysts. In addition, we are implementing an active proxy voting, which will enable us to vote on CBAM-held securities.

We are continuing to build the process, track record and engagement in SRI for what we expect to be a growing area of client interest and potentially a sea-change in how clients may want to invest in the future.

Important information and risks
No investment or investment strategy is without risks. The value of investments and the income from them can go down as well as up. Investors may get back less than the full amount originally invested. Although still diversified, SRI uses a narrower pool of assets than an unconstrained investment portfolio. If you are unsure about any information contained within this document, or the suitability of this investment to meet your needs, you should speak to your financial adviser or investment manager. This document is provided by Close Asset Management Limited for information purposes only, does not constitute financial advice and should not be relied upon for the purposes of any investment decisions.


Before you invest, make sure you feel comfortable with the level of risk you take. Investments aim to grow your money, but they might lose it too.