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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.

Responsible investing is about a desire to use your investments to benefit the environment and society, as well as yourself.

There are five main responsible investment approaches you can use to complement your usual financial analysis. You don't have to use one approach in isolation, multiple of them could be applied.

Stewardship

Stewardship means using your position as an investor to drive positive change. This can be anything from pushing a business to improve its environmental credentials to influencing executive pay. Ordinary shareholders can use their voting power to drive change on issues they care about, but fund managers can often engage with a company's management team directly to make their views heard. The more shares someone owns, the more influence they can have.

ESG

ESG integration means considering the environmental, social and governance risks and opportunities of companies when you invest. It covers a range of different topics from deforestation and climate change to health & safety, data security and board diversity. The importance of these factors will vary from company to company, depending on the industry it sits in. Health & safety will be particularly important for a mining company, for example, while data security would be more material for a financial services company.

Exclusions

Some investors screen out companies or industries they believe have a negative impact on the environment or society, often for moral or religious reasons. This might include weapons manufacturers, high interest lenders, tobacco producers or companies that make money from gambling.

Sustainable investing

Sustainability-focused investors try to make money by investing in companies that are more sustainable than their competitors, or likely to benefit from the growing need for more sustainable goods and services.

They generally favour companies that make sustainability a core part of their business strategy, with strong commitments to reducing any negative effects on the environment and improving social outcomes through their products and operations.

Impact investing

Finally, impact investing involves investing 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 on the positive impact that their funds achieve.

How to find responsible investments

You can manage a share portfolio using any 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 rigorously than others. If you want to take this a step further you could invest in an exclusions-based fund, or one focused on benefiting from sustainability-related opportunities. However you choose to invest, our responsible investment hub is a great place to get started.

The most successful portfolios over the long-term have tended to be diversified ones that invest in a range of different themes, types of investments, countries, and industries.

The value of investments go up and down in value so you can get back less than you invest.

This is not personal advice. If you are unsure what's right for your circumstances please ask us for advice.

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