In our SRI Primer, we highlight 21 different SRI strategies. Each strategy has a slightly different set of objectives and each therefore requires analysts to direct their research in a slightly different way. Companies, of course, cannot be expected to understand and respond to every single variation that investors may apply. They will, however, benefit from a basic understanding of what investors are looking for in their pursuit of four core strategies:
- For Negative Screening analysts ask: Is XYZ involved in any ‘unethical’ activities?
- For Best in Class, they ask: How does XYZ’s sustainability performance compare with that of its peers?
- For Engagement, the question is: Does XYZ’s approach to sustainability have potential to add or destroy value? Should we aim to influence this?
- For Integrated Analysis, the question has become: What does XYZ’s approach to specific aspects of sustainable development tell me about the fair value of the company’s shares, their market valuation and the difference between the two?
Companies clearly need to ensure that, in their communications, they meet as many of these different investor needs as possible.
Simple disclosure and questionnaires typically covers the needs of negative screening. Comprehensive sustainability reporting is needed for ‘best-in-class’ analysis. Direct meetings that can communicate context and detail will probably be needed to communicate with investors practising ‘engagement’ and ‘integrated analysis’ strategies.
