Explaining and Exploring Sustainable Investment - Flipbook - Page 6
Defining terms
When examining this kind of investment
in more detail, the first hurdle to
overcome is the wide range of terms:
sustainable, ethical, dark green, SRI
(socially responsible investing), ESG,
impact and engagement are all
used, sometimes interchangeably.
The UK regulator, the Financial
Conduct Authority, is working on a
Sustainability Disclosure Requirement
framework that will formally differentiate
funds in this area, with the main areas
set out below.
Sustainable investing: This captures the inclusion of sustainability
(impacts and interaction with the environment and wider society)
into core investment decisions.
Stewardship: Having formal policies to hold companies to account
by actively voting and challenging them to improve how they are
run. This is required in the UK but implemented to different degrees.
Ethical: Avoiding controversial industries such as tobacco, arms,
gambling, pornography, fossil fuels and big oil. Also known as
dark green or negative screening.
Responsible investment (or socially responsible investment (SRI)):
This typically refers to conventional funds that may avoid certain
areas of the market on sustainability grounds and possibly have
some engagement.
Sustainable themes (or positive screening): Identifying and
investing in companies exposed to positive secular trends and
expected to experience rising demand as we need more of their
products to develop in a more sustainable manner. This includes
environmental technologies and renewables but also covers health,
education, cyber security and many others. This has sometimes
been referred to as light green investing.
Engagement: Challenging companies in which you are invested to
take a more proactive approach to how they are run, for the benefit
of a broad range of stakeholders rather than just shareholders.
6 - Liontrust: Explaining and exploring sustainable investment
ESG: Refers to environmental, social and governance issues. It
has started to be used more to describe how well a business is
managed and less about how sustainable the product or service
they provide actually is, and the media and many fund groups also
now employ it as a catch-all for anything on these two pages.
Impact investment: This is an extension of sustainability themes
when investors want to own companies with meaningful positive
impacts. We are beginning to see more disclosure in this area via
metrics such as exposure to positive themes and contributions to the
UN’s Sustainable Development Goals (SDGs), for example, with
more evolving all the time.
