HL to adopt IA responsible investing definitions

Investors increasingly want to make sure their views on environmental and social issues are reflected in their investment portfolios. In recent years, numerous funds have been created to cater for the demand.

But there's a problem. Each responsible investment fund does something slightly different and a wide variety of terms are used to describe their approaches. So it can be tough for investors to work out what each one is doing, and whether it's in line with their own principles.

The Investment Association (IA) recently published a set of definitions to describe and categorise the ways you can invest responsibly. As of the start of this year, the IA started asking fund managers to identify which funds should be classified as having responsible investment characteristics. The IA will publish statistics on the sector later this year.

The new categories are outlined below. They're not mutually exclusive, meaning several could apply to a particular fund.

• Stewardship – Funds that invest to deliver a good return alongside sustainable benefits for the economy, the environment and society. Fund managers practicing good stewardship vote at AGMs and engage with company managers to hold them to account.
• ESG integration – ESG integrated funds systematically consider environmental, social and governance factors as part of their wider risk management processes. The companies that run these funds will often publish a statement outlining their commitment to ESG and are usually signatories to the Principles of Responsible Investment (PRI).
• Exclusions – Funds that prohibit certain investments for ethical, religious or values-based reasons. Exclusions might apply to individual companies, products, business activities, sectors or even entire countries. They may also exclude companies that score poorly on sustainability metrics, such as carbon emissions. Companies that are not excluded may also have to pass an ESG assessment before being considered for the fund.
• Sustainability focus – These funds try to make money by investing in companies that are more sustainable than their competitors or that are likely to benefit from the growing need for more sustainable goods and services. Funds may apply a variety of approaches including 'best in class' (focusing on sector-leading companies) and 'positive tilt' (investing more in companies that score highly on sustainability measures).
• Impact investing – These funds measure and report back on the positive impact they set out to make on the environment and society. 'Impact' may be measured against a variety of factors, including the UN Sustainable Development Goals.

Hargreaves Lansdown has adopted the IAs definitions in our literature covering responsible investment.

A more detailed explanation of each term can be found in our Guide to responsible investment.

View our guide