The key to understanding the difference between Socially Responsible Investment / Sustainable and Responsible Investment (SRI) and Social Investment (SI) is first to establish our meaning and understanding of the terms because it is a murky world of overlapping phrases and terminology .
Figure 1. Common examples of the crossover of terminology
Due to this overlap, I believe SRI is best explained with the following definition from the UKSIF website:
“Sustainable investment and finance incorporates environmental, social and governance factors in financial services decision-making alongside more traditional financial criteria. This may be for purely financial reasons or to achieve additional objectives alongside financial aims…”
And SI, I believe, is suitably explained by the World Economic Forum (WEF) definition provided here from the 2014 Eurosif European SRI Study:
“Impact investing is an investment approach that intentionally seeks to create both financial return and positive social or environmental impact that is actively measured; it does intentionally and explicitly set out to deliver the dual objective of social/ environmental outcomes and financial returns …”
Following on from this, I think the best way to continue to separate these terms is to think about them in terms of being passive or active. Although both are motivated by personal goals and values, SI is a targeted act to search out and invest in enterprises where achieving social value is at the core of its business. SRI, on the other hand, looks to apply a collection of screens to either select or reject assets based on criteria that consider ecological, social, corporate governance and ethical standards.
Therefore, rather than passively screening investments to ensure there are no nasty consequences, SI is a more active exploration into investment opportunities where creating meaningful social or environmental outcomes is an integral component and investee/investor motivator. Indeed, for SI, the financial return is given equal weight to the social impact that aims to be delivered whereas for SRI you could argue there is a stronger emphasis on obtaining a robust financial return first, with the “good” outcome coming a close second.
It is pertinent to remember that neither of these strategies are new and both have long historical backgrounds. They are also both growing markets. Towards the end of 2012, Big Society Capital and The Boston Consulting Group forecasted that the SI market in the UK could reach £1bn by 2016. Earlier this year, this estimate had been surpassed with the social investment market in the UK now estimated to be worth £1.5bn. The last comprehensive review of sustainable and responsible investing across Europe found that for SRI in the UK in 2011, the market was estimated at being worth approx. £1.1tn and in 2013 this had grown to an estimated £2.9tn. Year on year, growth is seen not only in the UK (for which we are one of the world leaders in both markets) but also worldwide.
To read more about the global picture of social investment please visit our blog, “In brief: GIIN Annual Impact Investor Survey 2016” here.