The CFA Institute, the UN Principles for Responsible Investment (PRI) and the Global Sustainable Investment Alliance (GSIA) have agreed harmonised definitions for responsible investment terms.
The guidance provides five key definitions for responsible investing terms: screening; environment, social and governance (ESG) integration; thematic investing; stewardship; and impact investing.
It aims to clarify these existing terms, rather than create new ones as well ascounter confusion about what different responsible investment strategies seek to achieve by clearly differentiating the objectives of the approaches.
The guidance is intended as a resource for investors, regulators, policymakers, and market participants, offering clear definitions for responsible investment approaches rather than criteria for product labelling or categorisation.
As for the terms, screening is described as applying rules based on defined criteria that determine whether an investment is permissible.
ESG integration is seen as an ongoing consideration of ESG factors within an investment analysis and decision-making process with the aim to improve risk-adjusted returns.
Thematic investing is defined as selecting assets to access specified trends while stewardship is designated as the use of investor rights and influence to protect and enhance overall long-term value for clients and beneficiaries.
This includes the common economic, social, and environmental assets on which their interests depend.
Last but not least impact investing is investing with the intention to generate a positive, measurable social and/or environmental impact alongside a financial return.
“Technical terminology is an important part of professional practice,” said Margaret Franklin, president and CEO at CFA Institute. “New terms are always emerging alongside new ideas, and definitions evolve over time. ”
She added, “It’s important to standardise terms and definitions as practices mature so that professionals can communicate efficiently and effectively with each other as well as with clients, regulators, and other market participants.”
David Atkin, CEO at PRI, said, “Responsible investment has grown significantly, and so have the expectations for clear and transparent communication.
Investors need language that enables them to communicate their responsible investment practices accurately, succinctly, and consistently. By unifying around common definitions, we support our signatories and members to communicate with confidence.”
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