Responsible investment has become something of catch-all term which can mean different things to a range of investors. This has resulted in assessing the worth of some responsible investments extremely difficult.
In a clear attempt to address this complicated picture, responsible investment campaigning group ShareAction has come up with a new definition for responsible investment, which investors can effectively use, but also be measured by.
To clear the responsible investment muddle, ShareAction has presented this as its clear definition: “Responsible investment is a transparent approach, embedded throughout the investment process, that takes the positive and negative impacts on people and planet as seriously as financial risk and return.”
The clear message is summed up by the word “embedded” as responsible investment should be embedded within the investment process.
ShareAction has identified what it said are “systemic issues holding back the investment industry’s potential to act on pressing social and environmental challenges” – in particular “inadequate ambition”, a narrow focus on financial risk and return, and a lack of accountability to pension savers and other underlying investors.
To back up its case, ShareAction said the definition incorporates four central principles for responsible investment.
The first being transparency, this being to enable accountability to clients and pension savers about the social and environmental impacts of investments made on their behalf.
The second is that key point of embedding responsible investment throughout the organisation and investment process.
Third, is taking responsibility for positive and negative impacts on people and planet.
Fourth, is taking real-world impacts as seriously as financial risk and return – an interesting addition to the responsible investment narrative.
To support institutional investors in adopting and implementing the new definition, ShareAction will publish a series of technical documents, starting in the second week of July with guidance on net-zero emissions target setting.
Catherine Howarth, chief executive of ShareAction, said: “Institutional investors have extraordinary power to influence how companies behave and the impacts they have on the world we live in.
“We see many examples of investors stepping into their power to drive positive action, for example, on emissions cuts, the payment of living wages and more. But we also see significant complacency in the investment community.”
She, therefore, said “a step change in responsible investment ambition is needed” to deal with climate change and ensure “decent health and living standards for people around the world.
“In launching this new definition of responsible investment, we’re demanding the investment industry balance risk, return and impact to better serve the interests of its ultimate clients.”
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