Socially responsible investing or SRI is gaining considerable popularity. Even so, there are still many myths about this type of investment.
1. ‘Socially responsible investments yield less’
For years, investors were convinced that if they made a socially responsible investment, they would have to settle for a lower return. Jorgen Muylaert, Policy Officer at KBC: ‘That is one of the most common preconceptions. However, when we look at the returns on socially responsible investment funds in the long term, they are in line with those of their conventional counterparts’.
SRI fund managers perform a double analysis on their selected investments. As is the case with regular investment funds, they assess companies on the basis of financial-economic criteria to ensure that the companies being invested in are financially sound. They also check them against sustainability criteria. ‘This combination gives us companies that are better equipped to deal with the challenges of the future’, says Muylaert.
2. ‘Sustainability is only about the environment and climate’
Socially responsible investment is also referred to as ESG Investing, where ‘E’ stands for Environmental, ‘S’ for Social and G’ for Governance. It clearly shows that impact on the environment and climate is just one of the pillars underpinning a sustainable investment philosophy.
Managers of SRI funds also assess companies based on social aspects, such as the exclusion of child labour or the guarantee that employees are free to join a trade union. Governance is also a key parameter for sustainable companies. Fiscal transparency and an independent Board of Directors are just a couple of criteria that are crucial in this regard.
‘Sustainable companies aim to achieve both prosperity and well-being, without jeopardising future generations’, adds Muylaert.
3. ‘You need a lot of money to invest sustainably’
The minimum initial investment in a sustainable fund does not differ from that in a conventional fund. What's more, socially responsible investors can opt for a periodic investment plan, where they are able to put money into an investment fund or selection of funds at fixed intervals. At KBC, that can be from as little as 25 euros a month.
Last year, the bank was also the first in Belgium to set up a sustainable pension savings fund. With this type of fund, investors can put away 980 euros or 1 260 euros for their pension and also qualify for tax relief on that amount.
4. ‘The product range is limited’
The range of investment products on offer has risen considerably on account of growing interest among investors. ‘We now try to ensure that every fund we launch also has a sustainable variant. About 40 per cent of investors opt for the latter type of fund, which illustrates that investor interest has increased sharply’, says Muylaert.
KBC alone offers almost 100 SRI funds, with various strategies being pursued. For instance, best-in-class funds select the most sustainable companies in a given sector, while theme funds focus on solutions to specific problems, such as water scarcity or global warming.
Impact investing funds invest in companies whose products or services are aimed at social and environmental benefits, such as healthy food or 3D printing.
5. ‘It's only purpose is to smarten up the image of the banks’
Socially responsible investing is not something new. ‘KBC launched the first SRI fund in Belgium 27 years ago. It shows that sustainability has long been on the radar, but it's only now we're noticing that our customers are becoming more open to it’, states Muylaert.
‘In addition, an independent advisory board of academics and other experts plays an important role in how we put together our sustainable funds. It checks the quality of our sustainability research and monitors the sustainability impact of socially controversial themes like robotisation. In other words, these experts keep us on our toes and help ensure our approach is kept up to date’.