What is Responsible Investing?
Responsible investing is a catch-all term that describes a desire to use your investments to benefit society as well as yourself. It encompasses everything from using Environmental, Social and Governance (ESG) factors to identify business risks and enhance long-term returns to investing in companies that make a positive, measurable impact on the environment and society.
There are many different approaches that sit under the responsible investing umbrella. They can be used on their own or together to complement traditional financial analysis.
What are some Responsible Investing strategies?
Stewardship
Stewardship is a way of interacting with a company in which you own shares to drive positive change for the benefit of all stakeholders. This can be anything from coaxing a business to improve its disclosure to opposing the way CEOs are paid. It tends to be a strategy employed by fund managers with relatively large holdings, and therefore more sway, but ordinary investors can use their voting power to push for positive outcomes as well. In fact we’ve recently made it easier for shareholders to cast their vote using our new online dashboard.
Learn more about shareholder voting
ESG Integration
ESG integration means investors are considering the environmental, social and governance risks and opportunities as part of their wider research. ESG investors believe these factors play an important part in the long-term performance of a company. It covers a range of different topics that vary in importance depending on the company’s size, location and industry. Here are the three ESG pillars and some examples of the issues they cover:
| Environmental Factors | Social Factors | Governance Factors |
|---|---|---|
| Climate change | Human rights | Bribery and corruption |
| Resource depletion | Diversity and inclusion | Remuneration |
| Waste | Modern slavery | Board diversity and structure |
| Biodiversity | Employee training | Tax strategy |
| Pollution | Community engagement | Transparency around governance reporting |
| Deforestation | Health and safety | Supply chain |
| Supply chain and use of third parties | Pay and reward including executive compensation |
Exclusions
Some investors may decide to avoid specific companies or industries that do harm to society. This can include controversial sectors like weapons manufacturing or tobacco. This type of investing is also known as negative screening.
What is sustainable investing?
Sustainability-focus investors try to make money by investing in companies that are more sustainable than their competitors. Using this approach can also mean looking for companies that are likely to benefit from the growing need for more sustainable goods and services.
What is impact investing?
Impact investors go a step further. They invest in companies that have a clear positive impact on the environment and society, like renewable energy companies, and education providers. Fund managers using this approach will measure and report back on the positive impact that their funds help to achieve.
How to find responsible investments
If you don’t have the time or expertise to select shares that align with your preferred Responsible Investment approach, you could consider a fund.
Almost all mainstream funds incorporate stewardship and ESG integration, but if you want to be more proactive in your approach, you could invest a portion of your portfolio in an exclusions-based fund, or a fund that focuses on benefiting from sustainability-related opportunities, like a sustainable-focus or impact fund.
There are a wide variety of options to suit a range of preferences. A good place to start your search is our Responsible Investment hub – it has everything from how to get started investing responsibly to helpful tips and fund ideas.
This is not personal advice. All investments can fall as well as rise in value, so you could get back less than you invest.
