The definition of an SRI fund?

The ethical fund managers in those days, companies like Aviva, F&C, Jupiter and Henderson Global Investors, employed teams of people to understand the activities of companies, but with this resource they were able to ‘engage’ with the directors of companies in an attempt to change corporate practices and activities. Thus SRI funds were funds which had ‘ethical’ screens and who acted ‘responsibly’ by engaging with the companies they were invested in. In those days the environmental agenda had not taken off and the UN had not issued their ‘Principles for Responsible Investment’ (launched in 2006).

Today

SRI is still used and understood by many to refer to 'Socially Responsible Investing', indeed Jupiter and Scottish Widows still define SRI in their communications as such, but others in the investment industry have moved on. The environment and the concept of sustainability are buzz issues and words, such that Henderson Global Investors and Aviva have changed their definition of SRI to ‘Sustainable and Responsible Investing'.

And it is not just the investment houses but also UKSIF, which acts as the trade association for the fund managers. UKSIF changed its name from 'UK Social Investment Forum' to the 'UK Sustainable Investment and Finance Association'. This change in definition for a trade body is understandable as it enables UKSIF to capture a much wider group of funds and fund managers making it more relevant to the modern investment industry. As such UKSIF can incorporate under its banner ethical funds, environmental funds, thematic funds and responsible funds.

In Practice

Investment funds which describe themselves as SRI funds in their marketing literature have a history which goes back into the ‘Socially Responsible Investing’ days of the 1990s. As such these funds tend to have ‘ethical’ screens and fulfil the modern definition of ‘responsible’ investing. This is why YourEthicalMoney.com, for example, defines the term simply as 'ethical', which in our opinion is over simplistic.

The term SRI is not understood widely outside the investment industry by the man on the street. Thus it is not a term which new funds are likely to use in their marketing literature as a focal point. Under the more modern definition it is entirely possible that an SRI fund could have no ethical screens. This is unlikely though as SRI is not understood by the public and therefore is a bit redundant as a marketing term.

The terms ‘Sustainable’ and ‘Responsible’ are separate terms used separately in the investment industry, thus SRI is a term likely to live on. However, it is not a useful way for an investor to define what he, or she is looking for. Worldwise Investor enables an investor to find investment funds using themes as a category. It also enables an investor to filter this selection further by applying an ethical screen if an investor deems this relevant.