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Responsible Investing

In this video, we look at what responsible investing is, and explore the 5 principles investors should be aware of.

The words Responsible Investing are presented on screen as the video starts. The video is animated with various scenes providing illustrations and metaphors for the narration. The italicised subheadings below should appear on-screen.

What it means to be a responsible investor is different to each of us - it depends on our values and our beliefs.

There are several ways you could invest responsibly:

A Sustainability Focus means investing in companies that are sustainable for the environment or society, and likely to remain so into the future.

Sustainability Improvers means investing in companies that might not be environmentally or socially sustainable today, but have the potential to improve their sustainability credentials over time.

Sustainability Impact is about investing in companies that make a positive measurable difference to the environment or society.

And then there are sustainability mixed goals, which combines companies that are already sustainable, those that have the potential to become more sustainable over time and those that aim to deliver a positive impact.

Funds that take these approaches to sustainability will be clearly labelled to help you choose a fund that meets your preferences.

ESG integration is about considering the environmental, social and governance risks and opportunities of an investment as part of your wider research. We think all investors should be thinking about ESG Integration - it makes good investment sense.

A stewardship approach involves interacting with the company you invest in to drive change. For most investors, this will mean voting at a company’s Annual General Meeting, but fund managers usually have bigger stakes in companies, which means they can often share their views with the management team directly.

If there are certain areas you don’t want to invest in, perhaps for moral or religious reasons, you can consider excluding them from your investments entirely.

So how do you find responsible investments?

You can manage a share portfolio using any one of these approaches, or you can mix and match the approaches to meet your own requirements. If you don't have the time or expertise to choose shares yourself, you could consider funds.

Most mainstream funds incorporate stewardship and ESG integration, but some do so more than others. If you want to take this a step further you could invest in a fund focused on benefiting from sustainability-related opportunities, or an exclusions-based fund.

This video isn’t personal advice. If you’re not sure what’s best for you, ask for financial advice. Investing for longer increases the likelihood of positive returns. Over a period of five years or more, investments usually give you a higher return compared to cash savings. But unlike cash, investments can go down as well as up in value, so you or your children could get back less than you put in.

What is Responsible Investing?

Responsible investing is a catch-all term that describes a desire to use your investments to benefit society as well as yourself. It encompasses everything from using Environmental, Social and Governance (ESG) factors to identify business risks and enhance long-term returns to investing in companies that make a positive, measurable impact on the environment and society.

There are many different approaches that sit under the responsible investing umbrella. They can be used on their own or together to complement traditional financial analysis.

What are some Responsible Investing strategies?

Stewardship

Stewardship is a way of interacting with a company in which you own shares to drive positive change for the benefit of all stakeholders. This can be anything from coaxing a business to improve its disclosure to opposing the way CEOs are paid. It tends to be a strategy employed by fund managers with relatively large holdings, and therefore more sway, but ordinary investors can use their voting power to push for positive outcomes as well. In fact we’ve recently made it easier for shareholders to cast their vote using our new online dashboard.

Learn more about shareholder voting

ESG Integration

ESG integration means investors are considering the environmental, social and governance risks and opportunities as part of their wider research. ESG investors believe these factors play an important part in the long-term performance of a company. It covers a range of different topics that vary in importance depending on the company’s size, location and industry. Here are the three ESG pillars and some examples of the issues they cover:

Environmental Factors	Social Factors	Governance Factors
Climate change	Human rights	Bribery and corruption
Resource depletion	Diversity and inclusion	Remuneration
Waste	Modern slavery	Board diversity and structure
Biodiversity	Employee training	Tax strategy
Pollution	Community engagement	Transparency around governance reporting
Deforestation	Health and safety	Supply chain
Supply chain and use of third parties	Pay and reward including executive compensation

Exclusions

Some investors may decide to avoid specific companies or industries that do harm to society. This can include controversial sectors like weapons manufacturing or tobacco. This type of investing is also known as negative screening.

What is sustainable investing?

Sustainability-focus investors try to make money by investing in companies that are more sustainable than their competitors. Using this approach can also mean looking for companies that are likely to benefit from the growing need for more sustainable goods and services.

What is impact investing?

Impact investors go a step further. They invest in companies that have a clear positive impact on the environment and society, like renewable energy companies, and education providers. Fund managers using this approach will measure and report back on the positive impact that their funds help to achieve.

How to find responsible investments

If you don’t have the time or expertise to select shares that align with your preferred Responsible Investment approach, you could consider a fund.

Almost all mainstream funds incorporate stewardship and ESG integration, but if you want to be more proactive in your approach, you could invest a portion of your portfolio in an exclusions-based fund, or a fund that focuses on benefiting from sustainability-related opportunities, like a sustainable-focus or impact fund.

There are a wide variety of options to suit a range of preferences. A good place to start your search is our Responsible Investment hub – it has everything from how to get started investing responsibly to helpful tips and fund ideas.

This is not personal advice. All investments can fall as well as rise in value, so you could get back less than you invest.

Related topics

Read more related glossary terms

Funds

A fund is a collective investment that pools together money from lots of individual investors. Learn more about the different types of mutual funds and how they work here.

Learn more about Funds

Shares

Shares represent part-ownership of a company. As a shareholder you own a ‘share’ of the business, and the monetary value attached to it, which can be sold to other investors.

Learn more about Shares