Whatrole do you think SRI investment should play in your personal futureinvestment portfolio?
Atthe normal level SRI acts as supplementary to the regulatoryinterventions objected at correcting market failures in order tominimize externality problems and help in optimizing social welfare.SRI is critical in future investments in social, public, private andvoluntary partnerships in voluntary environmental regulation. Thiscan provide an alternative in governing interventions in investmentsobject at enhancing a socially responsible environment.
Furthermore,the SRI provides a means of compensating for lack of governinginstitutions and compensating for poor environmental regulationimplementation. Research indicates that SRI provides a perspectivebeyond the normal financial performance of an investment to considerthe track record on social and environmental governance criteria.Also, the pursuit of SRI never compromises the investmentperformance rather, it offers several opportunities with increasedpotential of generating competitive returns.
Recentstudy by Benson and Humphrey (2008) has shown that on average theinvestments done using the SRI platform is statistically similar tothe traditional funds. This implies that in future investments, SRIcan be used to assess the effectiveness of performance of aninvestment as well as help in identifying the potential risks thathas the potential of affecting long-term financial returns.Incorporating SRI in the investments will offer a potential for‘double-bottom line’ that will ensure competitive financialresults accompanied by positive impacts on environment.
SRIis unlimited to both large and small niche. This implies that whenanticipating to incorporate SRI in future investment, the benefitswill be huge, especially with regards to the accessibility to thebroadly diversified investment options like large bonds and stocksthat that act as core holdings in the investment portfolios. Also,the SRI necessitates that ESG leadership. This implies that SRI canbe beneficial in helping the asset managers assess the long -termrisks in a more enlightened way than the investors without SRI.Statman (2000) argues that the consideration of SRI in futureinvestment provides broader impacts meant to promote good governanceand enhance the social and environmental practices relative to theother competitors in the field.
Inconclusion, it is justifiable saying that SRI offers unlimitedopportunities when incorporated in any investment. While it is truethat SRI does have any effects the financial performance, itsincorporation is far much better than lack of it as it comes withextra benefit of providing a socially friendly environment.
Benson,K.L. and Humphrey, J.E. (2008). Socially Responsible InvestmentFunds: Investor Reaction to Current and Past Returns. Journalof Banking and Finance,32 (9), 1850-1859.
Statman, M. (2000). Socially Responsible Mutual Funds. Financial Analysts Journal , 30-39.