Sustainable and Ethical Investing – The terminology
The terminology surrounding sustainable and ethical investing can be confusing, refer to our handy glossary to help fill in any of the gaps…
This involves investing in those companies that lead their peer groups in terms of ethical and sustainable policies.
The sale of an asset for social or political goals, for example, the selling of South African assets during the apartheid era or, more recently, selling investments in fossil fuel-related assets.
ESG: ENVIRONMENTAL, SOCIAL AND GOVERNANCE
The three central factors used to measure the sustainability and ethical impact of an investment.
Ethical investing is the practice of selecting investments based on ethical or moral principles. This is typically done by filtering out harmful activities (negative screening) and proactively seeking to invest in companies that are committed to making a positive impact through their environmental, social and governance (ESG) practices (positive screening).
A strategy designed to exclude those companies, sectors or countries that are not aligned to an investor’s values.
A policy of selecting companies considered to be positive for the environment, such as those offering alternative sources of energy or those with a proven track record in reducing their environmental impact.
An investment strategy which targets those companies that have a positive social and/or environmental impact whilst demonstrating high levels of accountability and governance.
A strategy which incorporates an investor’s moral principles by filtering out specific activities or industries, such as tobacco, alcohol, pornography or gambling.
A policy which selects those companies that are outperforming their peers in relation to ESG measures or those best positioned to solve specific long-term ESG challenges.
This term is synonymous with ESG investing and aims to take into account different kinds of social, environmental or governance factors in investments.
Also known as vice stocks, these relate to companies associated with activities considered either unethical or immoral, such as weapons manufacturers, the gambling industry or firms involved in animal testing.
SOCIALLY RESPONSIBLE INVESTING (SRI)
Another three-letter acronym, SRI is one of the oldest ethical investment strategies, which involves focusing on a range of social issues, such as labour rights.
Purposeful dialogue between shareholders and boards, designed to ensure a company’s long-term strategy and day-today management is effective and aligned with shareholder interests.
An investment style that takes into account a range of environmental issues, such as global warming.
An investment strategy which aims to identify trends and the underlying investments positioned to benefit from the emergence of those trends.
A policy that seeks to prioritise investors’ sustainability objectives, rather than attempting to maximise returns in isolation.
The value of investments can go down as well as up and you may not get back the full amount you invested. The past is not a guide to future performance and past performance may not necessarily be repeated.