Responsible investing has a long-term purpose of creating financial returns with social and environmental value. Integrating sustainable concerns in investment strategies is shown to have a positive impact on society as well as reducing risks.
By allocating capital to sustainable issues, the financial sector plays a crucial role in achieving the Sustainable Development Goals of UN:s agenda 2030. Below we’ll list the most common approaches for responsible investments found among institutional investors.
ESG integration: Incorporate ESG into the investment process by analyzing ESG issues.
Active ownership: The use of power as a shareholder to actively influence the activities and behavior of a portfolio company.
Advocacy: Influence industries and policymakers with shareholder power.
Impact investing: Investing in companies that target ESG issues.
Negative screening: Exclusion of funds, sector or portfolio companies having negative ESG-performance.
Positive screening: Investing in the most positive ESG- performed fund, sector or portfolio company. Also known as best in class strategy.
Active ownership activities related to a responsible investment approach include engagements. These are initiated by shareholders in order to create sustainable value by increasing positive impact and reducing risks. Engagements are tangible actions targeting comprehensive goals and can be initiated in alignment with the responsible investment strategy. There are two common approaches to classify engagements:
Thematic engagement: Contributes to solutions for environmental- or social segments.
Material risk engagement: Mitigates high-risk ESG-issues and reduces negative impact.
Norm-based engagement: Acting in accordance with universal norms
By starting to take responsibility, encourage and influence in a matter that suits your business, the financial sector can generate a great impact.