Responsible investing is not a new concept. The industry has been talking about it for many years, certainly since the early 2000s. Back then, it was seen as a niche subject, only for those ‘activist’ clients who wanted to ‘go green’.
The idea that it’s a niche area still persists, but it’s time to realise that responsible investment is now mainstream – and only set to grow in popularity.
As well as changing attitudes, we need to update our language – ‘green’ is no longer a catch-all term. Responsible investment covers several different facets, and we always try to be clear about what element we are talking about.
What is ‘ESG’?
ESG stands for environmental, social, and governance. ESG factors can be considered as part of the analysis process to identify material risks and growth opportunities. These factors are integrated into the investment analysis process with the purpose of investing responsibly.
ESG factors are a broad range of issues that could impact a company’s ability to generate value for investors over the long term. Importantly, ESG issues are often interlinked, and their impact (positive or negative) can be felt beyond the particular issue defined in isolation. For example, climate change is categorised as an ‘E’ issue but can also have a significant impact on humans and economies.
|Factor||Example issue to consider when investing responsibly||Example of investment areas/industries that could be impacted|
Conservation of the natural world
People and relationships
|Clothing and apparel
The standards for running a company
|Bribery and corruption
Audit committee structure
What is responsible investment, and how does it relate to ESG?
Responsible investment is defined by the UN-backed Principles for Responsible Investment (PRI) as “a strategy or practice that incorporates environmental, social and governance (ESG) factors into investment decisions and ownership activity”.
Considering ESG factors as part of your investment process – ESG integration – is one element of a responsible investment approach
What are ‘ESG’ investment products?
‘ESG’ labelled products may use a combination of responsible investment approaches (including ESG integration) but must be intentional and specific about the measurable environmental and social outcomes they seek to achieve.