How institutions select socially responsible investments

Socially responsible investment (SRI) describes an investment process that considers environmental, social, ethical and governance issues as part of the investment decision.

Socially responsible investing can use one or more of the following four basic options:

1. Screening: This is when certain securities are included or excluded from investment consideration based on social and/or environmental criteria.
   
   Negative screens: an investment manager will take a group of companies and 'screen out' those which fail to meet a set of social criteria, for example, companies operating in industries such as armaments, alcohol or tobacco.
   
   Positive screens: an investment manager searches for companies who are practising socially or environmentally friendly activities and builds a portfolio of these stocks.
2. Divesting: This is the act of removing stocks from an investment portfolio based on mainly ethical, non-financial objections to certain business activities of a corporation.
3. Positive investing: This involves making investments in activities and companies believed to have a high and positive social impact.
4. Shareholder activism: This is when shareholder actions are used to positively influence corporate behavior by submitting and voting on resolutions presented to corporate management.

How First State Super selects SRIs

First State Super has engaged external managers to manage the investments of the Australian Socially Responsible Equities investment option.

We have selected managers that use a variety of screens to eliminate equities (or shares) that do not meet the required socially responsible criteria, that use positive investing to either seek companies with a sustainable approach to the production of goods or services or to seek those companies who, even though they may have a less sustainable approach, have strong environmental, social and governance performance.

Research into areas like customer and employee relationships and commitment to environmental sustainability is used to assess companies. The managers combine the findings from research with established financial analysis. They apply the same investment process to the eligible socially responsible equities as they do to their broader Australian equities portfolio to achieve strong investment returns over the long term.