We spoke with Theodore Casparian, SRI educator and founder of Sustainable Investing 4 All, to discuss the most important concepts and trends driving sustainable and responsible investments.

T CasparianWhat does SRI mean to you?

SRI stands for sustainable, responsible and impact. The word “sustainable” may mean different things to different people – to me a company is sustainable when its business model reflects practices that can continue, without preventing others from continuing on their own paths. “Responsible” means that it responds to its surroundings in the appropriate way from an ethical and practical point of view. “Impact” refers to how its actions can make the world a better place. This last piece has been gaining more attention in the investment world lately. While ESG (environmental, social and governance) analysis may reveal companies that minimize harm, impact investing takes a proactive approach in selecting companies that are intentionally trying to solve a social or environmental problem, while simultaneously generating positive financial returns.

Why are you so interested in SRI?

 From a very young age I was aware of our world’s imbalances and how many people and places are underserved. I recognized the important role that corporations play in this respect, and bought a company that was run in a sustainable and responsible way to use it as a model to explain how companies should treat their employees, source their materials, and interact with the public. It is important to understand the power of investors, who can fund or defund companies based on their actions. The world is now a more educated place, and investors can use their power to create a positive impact.

What is the difference between SRI and ESG?

SRI is a mindset, a perspective – it addresses questions like: Why are we doing this? What is the goal? ESG is a way to measure environmental, social and governance indicators. Some analysts compile ESG information on companies and put out reports describing how companies score on these areas. All companies can be assessed for ESG scores, and responsible investors tend to invest in those that rank highest.

Finally, thematic investing –focusing on companies that engage in a particular theme such as clean water or community work– is considered an SRI strategy regardless of whether the companies are assessed for ESG scores or not.

Why do you think SRI has gained such strong popularity in the past few years?

The same way pollution became an important issue in the 60’s, inequality and climate change are the two main issues driving the world right now. People are asking themselves: “Why isn’t the world the place it could be?”

Income inequality has been growing enormously each year since 1980. The middle class is sinking and a handful of people are rising to the top. In part, this income inequality is created by the way our companies are operated, the way our pay scales work. Investors realize this is not sustainable and are increasingly investing their money in companies that treat and pay their employees fairly. They realize the impact they can create through their investments.

Climate change is also driving a lot of inequality because people are having a hard time earning a living from their land due to droughts, flooding, and other natural disasters. Many people are forced to migrate when these events take place. The way businesses treat the planet has a huge effect on whether this world can continue. Here again, investors realize the impact they can create through their investments or divestments.

Another really important way in which investors can drive positive change is through increased shareowner engagement…

Tell me more about shareowner engagement. How does it work?

Investors can create an impact not just by investing or divesting from companies, but also by changing companies’ practices to make them more sustainable and responsible. Shareowner engagement is about active ownership.

If you are a stock owner who has held at least USD 2,000 worth of a company’s stock for more than a year, you have the right to make a proposal to the company’s board of directors. You can propose, for example, that the company pay its staff more fairly or interact with the environment in a more responsible way. This proposal is then presented to all shareholders at the annual meeting and submitted to a vote.

A lot of companies listen carefully to their owners and will make the proposed changes to become better companies and achieve higher ESG scores. If this is not the case, you can still file a resolution – a written legal document that recommends the board of directors to make the changes. Resolutions often get management’s attention and are withdrawn (because the issue at hand is addressed by management) before they make it to the meeting. If management doesn’t make the suggested changes, the resolution goes to a vote.

If you are invested in a mutual fund, you don’t get to vote. Instead, the mutual fund does the voting for you, so it is important that you select those funds that will challenge companies’ management and vote in favor of resolutions that make companies more sustainable and responsible.

What are the most common questions that you receive from investors who are considering investing alongside their values?

The two most common questions are: “Will I get lower returns?” and “Can my investment choices and proxy votes really make a difference?”

My answer to the first question is straight-forward: responsible companies are more successful than traditional ones and have historically had higher long-term returns. There are hundreds of studies that prove this fact and I frequently cite the following two: “ESG and financial performance: aggregated evidence from more than 2000 empirical studies, and “From the stockholder to the stakeholder.

My answer to the second question is that everybody plays an important role. Otherwise, the growth in SRI investments in the last few years wouldn’t have been so phenomenal. According to the US SIF Foundation’s 2014 Report on Sustainable and Responsible Investing Trends in the United States, “as of year-end 2013, more than one out of every six dollars under professional management in the United States—$6.57 trillion or more—was invested according to SRI strategies.” This represents 18% of US total assets under management. In Europe, close to 50% of assets under management are invested according to SRI strategies. To me, this means that if you are not paying attention to what a growing portion of investors are doing, you will be left behind.


Where do investors get most of their information on sustainable and responsible investments?

There are two main ways in which retail investors can learn about sustainable, responsible, and impact investments: indirectly through their 401K investment options, and directly through their own broker, financial advisor or wealth manager.

Self-learning is also possible as traditional publications like The New York Times or Institutional Investor have been covering this topic more extensively as of late. However, due to the fact that the majority of SRI investments take place in the institutional world, a lot of the information on the space has been expensive or not readily available to retail investors. There are more and more tools everyday bringing this information to the general investing public, though.

My recommendation to them is to receive advice and education through financial advisors, who should be doing their homework in the field.

Which specific products should people be investing in (specific stocks, mutual funds, real estate investments, other)?

From a personal perspective, I think that investing in one company is not a good idea because I believe in diversification. Unless you have the ability to pick 80-100 stocks to create a well-diversified portfolio, it is better to rely on an experienced mutual fund manager who can do it for you.

Asset allocation is also very important and I recommend people to invest in real assets, stocks, bonds, commodities, etc., and hold on to some cash. I believe in the financial services industry and advise retail investors to rely on experienced financial advisors to make smart asset allocation decisions.

What is your biggest piece of advice to retail investors and financial advisors who are getting into the SRI space now?

Learn, learn, learn! If you are a retail investor, find a financial advisor who has done his research – pay experienced financial professionals for what they are good at as opposed to doing it on your own. Also, go to websites, read mutual fund brochures, and educate yourself.

If you are a financial advisor, read and learn even more. Go to conferences that gather the most knowledgeable professionals in the industry. I personally like the SRI Conference that is organized by First Affirmative Financial Network, which takes place in October or November every year. Make sure you also attend the US SIF Conference that takes place every May, and become a US SIF member to gain access to all of the resources they make available in the field.

Visit my website Sustainable Investing 4 All, and call me anytime at 609-213-2218. I am an SRI educator and provide consultations free of charge.

In which direction is SRI going and where do you expect to see it five years from now?

In years to come, a greater portion of the capital worldwide will be invested in SRI strategies. More people will recognize that SRI is a better, more profitable and productive way to look at companies. Those that remain with a narrow investment perspective and miss out on the growing sustainable and responsible trend will be left behind. For instance, some big pension funds simply will not work with managers who are not using ESG tools. Investors should learn as much as they can and get in the game before it’s too late.