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SRI Is Not Less Risky Than Average, Says Pictet

Max Skjönsberg London 27 June 2011

SRI Is Not Less Risky Than Average, Says Pictet

Socially responsible investments were not better protected than other investments during the financial meltdown, according to a study by Swiss-based Pictet Asset Management.

During the crisis, SRI equity portfolios performed in line with the broad market. The fact that the SRI community warned against some of the methods that caused havoc, such as dysfunctional incentives, unethical business conduct and bad governance, did not make its portfolios less risky, says the firm. 

The study found that for this type of investment to thrive it needs to look into the sustainability of companies’ financial fundamentals. This can make portfolios more resilient to losses and, except in the most vigorous market recoveries, they become more likely to outperform. Looking at financial performance in extra-financial criteria is necessary but not sufficient, as they neglect negative and potentially destabilising external factors.  

“For too long, SRI investors have been made to believe that extra-financial research alone could shield them from market adversities - an assertion which is not borne out by facts,” says Christoph Butz, Pictet’s sustainability expert.

“To tilt environmental, social and governance-screened portfolios towards more financial sustainability opens up an interesting perspective. The promise of lower risk and higher returns finally seems to be within reach.”

The Pictet study contradicts the established view that SRI is less risky. The Canadian SRI review for 2010 reported that the investment form had shown resilience during the crisis.

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