Sustainable and Responsible Investment
Frequently used terms
Corporate social responsibility (CSR)
Also referred to as corporate responsibility (CR), this is the term used by organizations to describe what they believe to be a ‘responsible’ response to the challenges they face in terms of social and environmental impacts.
Corporate governance (CG)
Corporate governance relates to company management issues such as board structure, remuneration, reporting and bribery / corruption. In effect, it’s the organization’s rules describing how it operates on a philosophic rather than procedural basis.
Environmental, social and governance investment (ESG)
A rating system commonly associated with pension funds, ESG refers to investor strategies surrounding environmental, social and governance related risks and opportunities. Such issues are sometimes referred to as ‘extra financial’ on ‘non-financial’.
Ethical investment (EI)
This is generally understood to relate to funds that apply ethical screening to investments. It often covers a wide range of social, ethical or environmental issues. Such investments often focus heavily on issues that relate to personal values or opinions, such as opposition to armaments, tobacco, alcohol, pornography, gambling or animal testing. Both socially responsible investment and sustainable and responsible investment are examples of ethical investment.
Fund EcoMarket (website)
A comprehensive, ‘whole of market’ database that contains extensive, generic information about all known sustainable, responsible and ethical funds. Although it’s intended and designed for use by financial service professionals, it’s open to everyone and free to use. (www.fundecomarket.co.uk).
A generic term used to describe investments that focus on environmental issues.
Investments that expect both a financial return and a tangible benefit to society, but aim to achieve a balance between these two objectives. These investments are often not structured as conventional funds and returns may be lower as concessions are often made to support early-stage ventures in emerging markets.
Believed to be the first publicly offered investment fund based on socially responsible principles. The fund was offered by an investment group in Boston, Massachusetts, in 1928 as a method of investors avoiding what were known as the ‘sin stocks’.
Sin stocks / industries
In 1758, Quakers were prohibited from any involvement with the slave trade. Following this, the Methodist movement, led by John Wesley, espoused an avoidance of investment in ‘sinful’ companies such as those involved with tobacco, firearms, alcohol and gambling. These industries were deemed ‘sinful’, became known as the ‘sin industries’ and led to the creation of the Pioneer Fund.
SRI … and SRI
In the USA – and, until relatively recently, in the UK – the abbreviation ‘SRI’ stood for ‘socially responsible investment’. However, in the UK, an alternative strategy – sustainable and responsible investment – evolved that focused heavily on ‘green’ issues (in addition to much of that covered by traditional SRI). Although there are significant differences between the two strategies, confusingly, both share the same abbreviation. Compounding this, the phrase ‘sustainable and responsible investment’ is a bit of a mouthful, lending many to refer to it simply as ‘SRI’ – with inevitable results. If in doubt, it’s best to verify exactly what the abbreviation ‘SRI’ actually stands for: is it ‘S’ for ‘sustainable’, or ‘S’ for ‘social’?
This is an independent, award-winning consultancy dedicated to promoting sustainable and responsible investment. It is recognised throughout the investment world as being a leader in the field of sustainable investment. It does not deal with individual investors or offer investment advice; its self-proclaimed purpose is “to help change the way people invest” by providing relevant investor information freely available so as to make the process as easy as possible. (www.sriservices.co.uk)
Part of the classification system formulated by SRI Services to help classify investment funds, the three key approaches being ‘supporting’, ‘avoiding’ and ‘engaging’. These three basic categories form the foundation on which SRI Styles are then based.
The second layer of SRI Services’ classification system involves determining which of nine styles a particular fund falls into from examining its ‘similarities and differences’ to others.
Social, ethical and environmental (SEE)
A historic term used to describe the entire range of issues covered by SRI, green and or ethical investments.
Socially responsible investment
The umbrella term for the original ‘value-led’ method of investment. It is still widely used, especially in the USA and other countries, but has been largely replaced by ‘sustainable and responsible investment’ which recognizes the (important) inclusion of green issues.
Evolved from the term ‘Sustainable Development’ as defined by the UN’s 1987 Brundtland Report: “…meeting the needs of the present without compromising the ability of future generations to meet their own needs.” In terms of investment, this broadly means looking for companies that make decisions in a way that safeguards the quality of life of those that are – or maybe – affected by their operations.
Sustainable and responsible investment (SRI)
An umbrella term for a range of investment strategies that focus on environmental issues along with ethical and social issues. The concept has grown from an earlier, similar strategy known as ‘socially responsible investment’ (see above) which has been heavily adapted to reflect growing interest in ‘environmental issues’ rather than just ‘people issues’.
Investments that follow a particular theme. These may be socially driven, environmentally oriented or a combination of the two, sustainability funds being an example.
Although every investor wants to put their money into a fund that returns a profit, a growing number consider their own personal values are equal to, if not more important than, profit alone. Consequently, investment funds are initially selected on how well their values match those of the investor and, only after considering that, does the investor look for the best return.
How can One Financial Solutions help you?
Every investor wants to put their money into a fund that will return a profit, but a growing number consider their own personal values to be equal to, if not more important than profit alone.
Deciding to use ‘sustainable and responsible investment’ as a value-led investment strategy adds an additional layer of complexity to choosing an investment fund as, of course, information about the fund’s environmental, social, ethical and governance credentials need to be considered.
One Financial Solutions is here to help you. We can explain how it works and, with access to information that will allow you to decide exactly which of the various sub-strategies and funds best meet your values, make it a very straightforward process.
So, if you’d like to know more about ‘value-led’ investment strategies as a method of investment, please call us on 020 3714 9565, or ask us to call you by sending an email to email@example.com.