1. ESG and SRI — How they’re different
Environmental issues are more relevant (and trendy) than ever. Protecting and preserving the environment has become a focal point in modern politics — and it’s slowly but surely creeping into the investing world.
Situations like the BP (BP) oil spill in the Gulf of Mexico and the Volkswagen (VLKAY) emissions debacle have spurred consumers’ demands for corporate responsibility — not to mention an urgency among companies who want to protect their reputations (and share prices).
Environmental, Social and Governance (ESG) criteria is a hot buzzword among the investing community and is often considered to be the next iteration of Socially Responsible Investment (SRI).
Both ESG and SRI have their proponents and detractors — and, while they’re often part of the same conversations, ESG and SRI are differing concepts with differing criteria.
Kostya Etus, a portfolio manager specializing in ESG and SRI strategies at CLS Investments, an Omaha-based investment management firm, explains that SRI is a traditional, exclusionary screening method to avoid “‘sin stocks,’ such as those in the tobacco, alcohol, and firearms industries.” As the crusade against “sin stocks” became less of a focal point, and environmental issues came into the spotlight, SRI as a philosophy gave way to ESG.