A rich vocabulary of words has emerged around socially responsible investment. Here are the terms you need to know.
Sustainable and Responsible Investment (SRI) – An umbrella term for a wide range of investment strategies that focus on ethical, social and environmental issues. Includes ethical investments, green investment and engagement. Broadly similar to the term Socially Responsible Investment, which originated in the USA.
Sustainability – a commonly used term, used to explain the need to live within the means of our ecosystem. Evolved from the term ‘Sustainable Development’ as defined in 1987 Brundtland Report. To paraphrase:‘…meeting the needs of the present without compromising the ability of future generations to meet their own needs.’
Environmental, social and governance investment (ESG) – an acronym used mainly in the pensions and institutional markets. ‘ESG’ refers to the consideration of risks and opportunities associated with environmental, social and governance factors. These are also sometimes referred to as ‘extra financial’ on ‘non financial’ issues.
Responsible investment – investment strategies that focus on shareholder responsibilities with particular regard to ‘ESG’ issues.
Social issues – a term that covers a wide range of issues relating to the people effected by company activities such a employees or local communities o Ethical Investment (EI) - ethically screened investment funds. Such funds normally apply negative and, or positive ‘values based’ or ‘ethical’ screens to help select investments. In practice such funds often consider a wide range of ethical, social and/ or environmental issues.
Corporate social responsibility (CSR), also referred to as corporate responsibility (CR) – is the term used by (investee) companies to describe their approach to social, environmental and other issues that are relevant to their particular business.
Impact investing - investing in a way that delivers measurable social and/or societal impacts and benefits as well as financial returns. Strategies may combine standard financial thinking philanthropic thinking. This discipline focuses more on measurable social benefits than SRI and ethical funds – but are nonetheless true ‘investments’.
Social, ethical and environmental (SEE) - a common acronym to describe the entire range of issues covered by SRI, green and or ethical investments. Used in the July 2000 disclosure amendment to the 1995 Pensions Act.
Corporate governance - a term used to refer to company management issues such as board structure, remuneration, reporting and bribery/corruption issues.
Green investments – a generic term used to describe investments which focus on environmental issues.
Responsible engagement - dialogue and voting based activity carried out by fund managers with the companies they invest in that aims to encourage higher standards without (normally) involving a decision to disinvest.
Thematic investing - investments that follow a particular theme. These may be socially driven, environmentally oriented or a combination of the two as with sustainability funds.
Funds are sometimes referred to as ‘dark green’ or ‘light green’. Although it is useful shorthand, this terminology is potentially misleading as it neither represents fund activity nor the issues a fund considers.
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