The Socially-Responsible Investment Landscape

What is Socially-Responsible Investing?

Socially-responsible investing (SRI), or sustainable investing, is a broad term used by many investment firms and applied with various nuances. SRI commonly refers to the practice of excluding from a financial portfolio those companies that are involved in industries affected by negative environmental, social, or governance (ESG) issues. However, as outlined in the Harvard Business Review (2019), there are many strategies for sustainable investing [1]:

Negative/exclusionary screening
Norms-based screening (eliminating companies that violate some set of norms, such as the Ten Principles of the UN Global Compact)
Positive/best-in-class screening (selecting companies with especially strong ESG performance)
Sustainability-themed investing (such as in a fund focused on access to clean water or renewable energy)
ESG integration (including ESG factors in fundamental analysis)
Active ownership (engaging deeply with portfolio companies)
Impact investing (looking for companies that make a positive impact on an ESG issue while still earning a market return)

As part of active ownership some SRI firms may also practice shareholder engagement, meaning that they vote in or file shareholder resolutions proposing changes in the way a company operates. Shareholder resolutions can help bring more transparency to a company, demand increased gender diversity on a board, or even pressure a company to begin ESG reporting. Some examples of successful shareholder resolutions addressing ESG issues can be found here:

A central premise of SRI is that companies that exhibit negative environmental, social, and governance factors pose both a financial risk as well as a risk to local and global wellbeing. Ultimately, the industries or companies that an SRI firm decides to exclude vary depending on the firm.

SRI at Advantage Capital Strategies

At Advantage Capital Strategies, our approach to SRI refers to the exclusion of companies involved in any of the following industries:
Weapons, including military and civil firearms, missiles, military vehicles and aircraft, and ammunitions
Fossil Fuels, including coal, oil, and gas
Predatory Lending
Private Prisons


SRI in Canada

Socially-responsible investing is experiencing profound growth both in Canada and worldwide. The value of Canadian assets deemed to be responsible investments is estimated to be over $2.1 trillion and growing [2]. In fact, according to the Responsible Investment Association, responsible investments now account for over half of all Canadian assets under management [2].

Many investment firms offer socially-responsible products or strategies, but only some apply socially-responsible principles to their entire investment portfolio. Advantage Capital Strategies is focused primarily on responsible investing and economic return; these principles are inextricable from our identity, and we believe that they are not mutually exclusive. In fact, research demonstrates that investments made using SRI principles are lower in risk and outperform traditional funds over 60% of the time [3].

The SRI Landscape

Globally, SRI continues to grow and capture the attention – and assets – of investors. In Europe SRI funds hold at least half of all assets, while in the United States investors have been slower to adopt ESG principles, with the Harvard Business Review estimating that about 25% of American assets are in SRI funds. According to the Responsible Investment Association and the Harvard Business Review, 50% of Canadian assets are in SRI funds, a level similar to Europe [4]. Globally, it is believed that over half of all assets are either already in funds that consider ESG factors or funds that are in the process of evaluating ESG factors [1]. Considering that SRI is still a growing field, it is not difficult to imagine a future in which most assets are held by funds that utilize sustainable investing strategies.

SRI is practiced by many types of investors, ranging from individuals to pension plan administrators to religious institutions. Different types of investors may have different reasons for choosing SRI: for some, social activism may be the most important factor, while others may use SRI as a means of limiting asset exposure to companies at risk of being affected by climate change or other ESG factors.


Trends in SRI

Standardized SRI reporting
Unlike financial reporting, which is regulated federally, there is no regulated or standardized method of reporting ESG performance. Therefore, if a company includes an ESG report in its Annual Report, they do so of their own accord and often according to their own standards. Some companies report ESG performance using the standards developed by the Sustainability Accounting Standards Board (SASB), an independent organization offering standardized methodology for ESG reporting, but other companies may not report ESG performance at all.

There are many ways that SRI will grow and change in the future, but one change that researchers anticipate is that ESG performance reporting will become regulated and standardized just like financial reporting. Such a change would allow for more accurate comparison of ESG performance between companies [4].

Private company impact investments
There is an increasing view that SRI can fall across asset classes. Notably, private company investments might be the most conducive to impact investment, as investors have more flexibility in accessing management and setting company direction. As such, investments can be made with the understanding that the creation of social impact, as well as financial returns are one of the driving factors in company success.

Fiduciary duty
Another change that may arise is in the widening of the definition of fiduciary duty to include consideration of ESG factors [1]. Fiduciary duty refers to the legal obligation of one party to act in the best interest of another party, such as in the advisor-investor relationship, where the advisor is bound to act in the best interest – financially – of the investor. However, because ESG factors have been demonstrated to influence financial performance, it is possible that the legal definition of fiduciary duty may widen to include necessary consideration of ESG issues. Implemented on a national or global level, such a shift would effectively make ESG-based investing the standard for investment practices. There is already some evidence of such a widening occurring: for example, in Ontario, the Financial Services Commission has issued a note requiring pension plan administrators to disclose their approach to considering ESG factors when developing the plan’s investment strategy [5].

The level of discussion concerning the relationship between fiduciary duty and ESG factors suggests indicates the growing prevalence of SRI at the national and international levels. There is still more research and growth needed in the field of sustainable investing, and many organizations and institutions are working to fill these gaps. Advantage Capital Strategies is proud to be part of the growing community of sustainable investors working to combine financial return with social responsibility.


For further reading, please visit:
• Principles for Responsible Investment:
• Responsible Investment Association:
• The Forum for Sustainable and Responsible Investment: