investor
Expert Opinion Fintech Companies Insights Latest News

How to Invest Ethically

By Geilan Malet-Bates (Co-Founder and Head of Sales, Plenitude.io)

ESG/ SRI/ Exclusionary/ Thematic/ Impact: How to be an ethical investor

On the surface, these terms appear to describe the same undertaking, hence are often interchangeably used. What is the key distinguishing factor?  Simply put, it’s the extent to which Return on Investment / financial profit, is prioritised over values-based considerations – decreasing the World’s carbon footprint, and aiding companies’ adherence to the UN’s 17 Sustainable Development Goals (SDGs).

Over the last 6 months, I’ve been privileged to attend Bloomberg, FCA, UKSIF, Guernsey Finance sustainable investment conferences, to name a few. Once the insightful panel talks and networking have come to an end, attendees are left pondering the medley of acronyms and terms. What exactly is their money invested in? How does this implicate wealth managers in their responsibilities to investors? The UK’s Investment Association has rightly announced a push for greater clarity on tightening investment terms in this area.  

The Global Sustainable Investment Alliance (GSIA), in its 2016 biennial report, stated that since 2014, capital invested into sustainable strategies, across asset classes, had grown globally by 25% on average (some regions observing greater growth than others) to $22.9 trillion, representing 26% of all institutionally-managed assets globally (in Europe it represents approx. 50%). With sustainable investment continuing its strong trajectory, this figure is substantially larger today.

So what are the strategies driving these figures?   

At one end, financial profit-only investments – no accounting for values here, only economic profit is king.  

Next, expectations of equally balanced financial and socially responsible returns through: Environmental, Social, Governance (ESG) – the impacts and opportunities of these factors are integrated into companies’ financial analyses in order to determine a holistic investment recommendation. Environmental: how a company allocates resources to diminish bad and promote climate-friendly practices; Social: how responsibly a company behaves and positively impacts the communities in which it operates; Governance: the strength of a company’s code of conduct and adherence to transparent reporting practices, such that the environmental and social aspects are also naturally well-executed. In the UK, recent pension legislation requires trustees to factor ESG considerations into client portfolios.

At one end, financial profit-only investments – no accounting for values here, only economic profit is king.

Exclusionary investments – a long time standard of many investment decisions, traditionally e.g tobacco, alcohol and gambling companies were forbidden in some strategies on religious/moral grounds. These could be considered the precursor of the different types of responsible investment that we know today and would extend to any industry or organisation conducting its business in a non-socially or sustainably viable way.  

Socially Responsible Investing (SRI) – a broad term encompassing, amongst others, thematic (investment in companies from different sectors, united by a common sustainable theme) and impact Investing (made into organisations or industries for positive ESG effect). The values emphasis of SRI outweighs economic profit; but that’s not to say that the desire for financial gain is totally lost. Going even further, some investors positively screen i.e. solely invest in entities excelling in their values-based considerations versus their peers. The UN-PRI drives greater discussion on this and the Investment Association offers a succinct explanation too.

Last but certainly not least effectively, stakeholders’ voices can also be strongly heard through their voting rights and by direct engagement with companies themselves regarding their practices. The GRI, EU and TCFD provide key contextual regulatory and disclosure guidance.  

Globally, the use of these different strategies vary given cultural considerations and I expect, in the long-term, that we’ll see the need for some diminish and the use of others, flourish further.

Please follow and like us:

Related posts

The “Free Movement of Money” Monese Celebrates Its Expansion

thefintechtimes

Finastra Offers Immediate Payments Capabilities in the Cloud for SMEs

thefintechtimes

British insurfintech hires top European talent but Brexit threatens to screw things up

thefintechtimes

Enjoy this blog? Please spread the word :)