The Evolution of SRI – Sustainable, Resilient, and Innovative Investing.
Our climate has already changed. Try to ignore the unprecedented heatwaves, rising sea levels, devastating wildfires, and relentless storms that are no longer distant threats but instead are today’s reality. This changed climate isn’t just a crisis for the environment; it’s a call to action for every individual, community, and investor. The choices we make with our resources today will shape the world we leave behind. It’s time to rethink how we invest—not just for financial returns, but for the impact those investments have on the planet and society.
For a long time, SRI stood for Socially Responsible Investing. Traditionally, the practice had three components: portfolio screening, shareholder advocacy, and community investing. Some advisors and clients still call it that, and they’re certainly not wrong in continuing to do so. However, there is much more to SRI than simply being socially responsible.
Over the years, investors wanted to take a more data-driven approach to responsible investing, making better investment decisions to enhance SRI. In 2004, the UN report Who Cares Wins coined the term ESG, or Environmental, Social, and Governance, saying, “…a better consideration of environmental, social, and governance factors will ultimately contribute to stronger and more resilient investment markets, as well as contribute to the sustainable development of societies.” Out of this, ESG data was born.
The problem with ESG data is that it is not standardized, and big asset managers equate it with sustainability. ESG metrics gauge a company’s environmental, social, and governance risks and are, therefore, a good practice to enhance an investment manager’s due diligence. So, ESG helps create a “less bad” portfolio with reduced risk, but it is not necessarily a sustainable one.
The SRI industry needs to do two things: first, distinguish itself from the risk-management investment style of ESG that has been co-opted by large investment managers such as Blackrock. Second, it needs to evolve to address the demands of our changed climate, ensure the ability of future generations to thrive, be resilient in the face of climate impacts, and lead the way in science and innovation. This is why I have coined the new SRI Sustainable, Resilient, and Innovative Investing.
Sustainability is the concept that the current generation is able to meet its needs without compromising the ability of future generations to meet theirs. In an ideal world, all generations have the opportunity to thrive. Sustainable companies focus on resource efficiency, health, and equity. From clean energy and electric vehicles (EVs) to green real estate, electrification, and the circular economy, sustainable investments promote a new economy concept.
It’s time to stop using the term “climate change” as a matter of practice. The evidence shows that we are now living with a changed climate. The devastating impacts of storms such as Hurricane Helene, the uncontrolled wildfires in the West, and the rising sea levels show that climate change is not something happening in the future. It is here now.
Because of the changed climate, infrastructure needs to be updated and built to be more Resilient and adaptive to this new changed climate paradigm. Cities such as Miami are experiencing flooding regularly during king tide events. Communications systems went down across Western North Carolina during Hurricane Helene and need to be hardened so residents aren’t left without a lifeline during the next storm. And the prevalence of wildfires in populated areas calls for the development of fire-resistant structures, landscaping, and even barriers. How we deal with the changed climate is just as important as reducing emissions, electrifying the economy, and creating equity.
Innovation defines our generation. Over the past few decades, we’ve seen technologies such as smartphones, MRIs, and GPS change our lives and solve some of the world’s greatest challenges. With the advent of AI and iterative learning, the pace of innovation is likely to continue growing exponentially. The timing couldn’t be better because without serious innovation, facing the existential challenge of the climate crisis would be very difficult.
Investment in this next level of innovation offers an opportunity to fund technologies that will reduce emissions, transition financial and energy systems, and develop cutting-edge medicines. We’re likely to see game-changing technologies such as fusion power, advanced materials, and maybe even a cure for cancer.
The evolution of SRI to a more modern definition of Sustainable, Resilient, and Innovative Investing is a natural progression of the practice that began in 1760, when John Wesley, the founder of the Methodist movement, gave a sermon entitled The Use of Money. In this sermon, Wesley espoused the concept of ethical gains, saying one should “gain all we can without hurting our neighbor in his body.”
We’ve come a long way since 1760 and now have both technologies and challenges that Wesley could never have imagined. Investing in solutions to create a sustainable, resilient, and innovative economy is the best way to ensure that future generations will not just live, but thrive.
