Explore the issues that sustainable, responsible, ESG and ethical options consider
The difference between sustainable and responsible investments (which we sometimes refer to as ‘SRI’) – and other investments – is that these funds (and portfolios) pay close attention to issues that are commonly overlooked or prioritised by other investors.
These ‘issues’ are often catagorised as falling within the following areas, although in reality they many are interconnected:
Environmental issues
Environmental challenges, such; as climate change, pollution, biodiversity loss, environmental management, waste management, the use of natural resources – including water, forestry, mining
Social issues
Issues that relate to people, such as; human rights, labour standards, child labour, equal opportunities, diversity, inclusion, food supply, health and safety
Governance issues
Issues relating to company management, such as; board structure, diversity, executive remuneration, bonuses, avoidance of bribery and corruption
Ethical issues
Values based and ethical concerns, such as; tobacco, armaments, pornography, alcohol, irresponsible marketing or advertising, animal welfare, animal testing (for cosmetics, medical or pharmaceutical purposes)
Fund EcoMarket includes a wide range of filter options that have been designed to help describe the many different issues individual funds focus on in terms that will make sense to individual investors with an interest in this area.
Application…
In practice these areas can be divided and subdivided into many dozens, if not hundreds of issues and sub issues. The emphasis and interpretation of these can also shift over time. New issues and challenges also emerge as public, political and business concern and responses shifts and new information arises. Together these make this area diverse and dynamic.
Different investment options focus on different issues. Some pay close attention to a comprehensive range of ethical and sustainability issues. Others focus on a single issue – or theme. Some research issues in great detail, others are more basic.
Whilst there is often a degree of consensus across strategies on some topics there are also differences.
Commonly used reference points – such as international standards, agreements and norms (eg the Paris Climate Agreement, UN Global Compact, and Sustainable Development Goals) are employed differently by different managers. This is why understanding strategies matters and different options suit different people.
A further consideration is language (and related metrics). The same issues may be looked at in different ways. For example, a fund or portfolio manager may say they ‘only invests in companies with strong environmental policies’ whilst another says they ‘avoid companies with poor environmental policies’. In practice, they may invest similarly. Further information, such as the information on our database, is required in order to be sure.
Fund manager responses to and concerns about the use of certain terms, since SDR arrived, should also be acknowledged, as the new rules are taking time to settle down.
Researching sustainable and ethical issues
Sustainability and other issues related research is resourced and managed differently by different companies.
Some separate sustainability, governance and, or stewardship research from financial decision making and employ additional individuals or teams to carry out this work . Others integrate these functions.
External metrics and methodologies, such as indices and benchmarks, may also be an important part of the research and asset selection process.
Decision making may also involve internal or external committees. The purpose, roles and responsibilities of these resources varies. For example some external committees can veto the acceptability of assets for ethical or sustainability related reasons. Others cannot.
The Fund EcoMarket database will help you identify strategy differences.