6 Flashcards
(7 cards)
What is responsible investment?
Responsible investment is a strategy and practice to incorporate environmental, social and governance (ESG) factors in investment decisions and active ownership
UN Principles for Responsible Investment
Principle 1: We will incorporate ESG issues into investment analysis and decision-making processes.
Principle 2:We will be active owners and incorporate ESG issues into our ownership policies and practices.
Principle 3:We will seek appropriate disclosure on ESG issues by the entities in which we invest.
Principle 4:We will promote acceptance and implementation of the Principles within the investment industry.
Principle 5:We will work together to enhance our effectiveness in implementing the Principles.
Principle 6:We will each report on our activities and progress towards implementing the Principles.
Types of responsible investments
Negative screening - the process of finding companies that score poorly on environmental, social and governance (ESG) factors relative to their peers.
Positive screening - the process of finding companies that score highly on environmental, social and governance (ESG) factors relative to their peers.
Best-in-class - finding the companies that are leaders in their sector in terms of meeting environmental, social and governance (ESG) criteria.
Shareholder action, corporate engagement - An active dialogue offers investors the opportunity to discuss sustainability risks and opportunities with companies and provides them with insights into investors’ expectations of corporate behavior.
Integration of ESG factors - The structural integration of information on Environmental, Social and Governance (ESG)factors into the investment decision-making process.
Thematic investing - Investing in themes contributing to the development of sustainability such as population growth, rising wealth in the developing world, natural resource scarcity, energy security and climate change.
Norm-based screening - a strategy that involvesassessing each company held in the investment portfolio againstspecific standards of Environmental, Social and Governance performance.
Impact/community investing - In impact or thematic investing, positive outcomes are of the utmost importance—meaning the investments need to have a positive impact in some way.
Why invest responsibly? The forces of responsible investment
Materiality
Client Demand
Regulation
materiality
There is a growing recognition in the financial industry and in academia that ESG factors influence investor returns. Explicitly and systematically including ESG issues in investment analysis and decisions – to better manage risks and improve returns – is called ESG integration.
Client demand
Beneficiaries and clients are increasingly calling for greater transparency about how and where their money is invested. This is driven by growing awareness that ESG factors influence company value, returns and reputation, and by an increasing focus on the environmental and social impacts of the companies they are invested in. Negative screening, which excludes certain sectors, companies or practices, is the most widespread approach to integrating values in a portfolio or fund.
Regulation
Since the mid-nineties, responsible investment regulation has increased significantly, with a particular surge in policy interventions since the 2008 financial crisis. Regulatory change has also been driven by a realisation among national and international regulators that the financial sector can play an important role in meeting global challenges such as climate change, modern slavery and tax avoidance.
