Responsible investing – how do you measure up?

Perpetual Private Insights

Socially responsible investing is a compelling concept – making a conscious decision to balance financial returns with social good. The trick is finding investments that align with your values. So it’s important to understand the full spectrum of socially responsible investing – and the criteria on which they are based.

Beyond the usual suspects

Socially responsible investing (SRI) had its origins in avoiding the usual suspects – companies in controversial industries like tobacco, alcohol and gambling. Investors wanted to ensure their money didn’t support companies operating in sectors that went against their values.

But what about companies outside these sectors that were part of portfolios? As investors became more ethically conscious in their decision making, they wanted to screen all companies in their portfolios on their commitment to environmental, social and governance (ESG) issues. These may include:

  • Pollution, climate change, scare resources (Environmental)
  • Health and safety, community relationships, employee wellbeing (Social)
  • Ethical management, strong boards, appropriate executive pay (Governance)

So the scope of screening has come a long way and can be applied broadly across a portfolio – beyond the usual suspects that may first come to mind.

A Growth Industry

According to Australia’s Responsible Investment Association (RIAA), their 150 members, which take into account environmental, social, governance (ESG) and ethical issues, have $500 billion in assets under management.

Screening – the bad and the good

So far we’ve talked about negative screening as a way to exclude companies from an investment portfolio – whether they are in industries that you don’t support, or operating more broadly but failing ESG filters.

But positive screening is also an integral part of socially responsible investing – focusing investment in companies that actively seek to do good. They may be involved in areas like social justice, environmental sustainability or alternative energy. Positive screening also identifies best-in-class companies in other industries with an ESG rating higher than their peers.

At Perpetual Private we think this approach – a combination of positive and negative screens – is the most common strategy for socially responsible investing because of its scalable nature and relative ease of implementation. 

The full spectrum

The United Nations Principles for Responsible Investment’s (UNPRI) has shaped a framework to better help understanding the impact of your investments (July 2013). As you can see in the diagram below, investments based on screening and ESG considerations are grouped to the left, as they focus on competitive returns for social investment. At Perpetual Private, we classify these investments as having measurable financial and social outcomes.

To the right of the diagram, investment strategies shift towards supporting specific themes, which may include funds that invest in clean energy or sustainable agriculture. Impact-first investing is aimed at solving environmental or social issues with a compromise on financial return – this could involve investment in community projects or financing businesses with a clear social purpose. Philanthropy completes the spectrum, where there is no expectation of financial return for the causes people passionately support.


Source: UNPRI, July 2013

Bringing it all together

There are many ways to approach socially responsible investing – from the screening of investments to ensure social and financial return through to themed investing and philanthropy. There’s a breadth of choice and ultimately the right decision is the one that aligns with your objectives.

If you’d like to have a conversation about creating a socially responsible portfolio to support your plans for making a difference, please fill in the contact form below. 


To learn more about socially responsible investing and how it can play a role in your investment portfolio contact your Perpetual adviser or request a call and we’ll be in touch shortly.

Perpetual Private advice and services are provided by Perpetual Trustee Company Limited (PTCo) ABN 42 000 001 007, AFSL 236643. 

This information has been prepared by PTCo. It contains general information only and is not intended to provide you with financial advice or take into account your objectives, financial situation or needs. You should consider, with a financial or other adviser, whether the information is suitable for your circumstances. To the extent permitted by law, no liability is accepted for any loss or damage as a result of any reliance on this information.