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Key terms and responsible investment framework

Date: 01 June 2021

Who is this article for?

Advisers who want to check their understanding of responsible investing.

Key takeaways

Responsible investing is not a new concept. The industry has been talking about it for many years, certainly since the early 2000’s. 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 the language we use – ‘green’ is no longer a catch-all term. Rather it’s only one facet of the term ESG (environment, social and governance).

Responsible investing and ESG investing are often used interchangeably, however, they do mean slightly different things.

What is ‘ESG’?

ESG stands for environmental, social, and governance. They are ‘non-financial’ factors that 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 refers to a broad range of factors 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
Environmental
Conservation of the natural world
Climate change
Biodiversity loss
Resource scarcity
Infrastructure
Agriculture
Mining
Tourism
Energy
Social
People and relationships
Human rights
Labour standards
Customer satisfaction
Data protection
Clothing and apparel
Agriculture
Consumer electronics
Governance
The standards for running a company
Bribery and corruption
Executive remuneration
Lobbying
Audit committee structure
Political contributions
All


What is responsible investment and how does it relate to ESG?

Responsible investment is the job an investment or fund manager does to incorporate ESG factors into the way they manage investors’ money.

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”.

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.

Useful download

Responsible investing is an evolving area with an array of terms and definitions. We’ve created a helpful ‘A-Z of responsible investment’ for you to refer to.

Download the A-Z guide

The IA’s Responsible Investment Framework provides standard definitions and terms

In 2018, the Investment Association launched their responsible investment framework. The framework categorises the different components of responsible investment and provides standard definitions to help create a common language for advisers, fund managers and consumers.

Quilter uses this framework to ensure a solid framework for managing the funds and portfolios offered by Quilter Investors and Quilter Cheviot.

The framework defines five main approaches:

Ask the experts

If you have a question on responsible investment, get in touch with our Quilter experts. Send your query to information@quilter.com.

Quilter is committed to responsible investment

It’s time to change the way we invest. More and more, investors are aware of the impact that their decisions can have on our society and environment, and are looking for more than just a financial return on their investments. As a result, they now want more control over how their beliefs are represented through their investments.

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