CFA Institute, responsible investing organization Principles for Responsible Investment (PRI) and the Global Sustainable Investment Alliance (GSIA) announced today the release of Definitions for Responsible Investment Approaches, a new guideline aimed at harmonizing sustainable investment terminology for more effective investment industry communication and to reduce greenwashing risk.
According to the organizations, the new resource follows significant growth in recent years in investor interest in ESG issues, driving a proliferation of investment products and practices, but also leading to new terminology that can be unclear or inconsistent.
The guidance was developed in response to a set of sustainability-related investment and finance recommendations published in 2021 by IOSCO, the leading international policy forum and standards setter for securities regulators, which included developing common terminology for sustainable finance terms and ESG approaches. IOSCO’s recommendations were aimed at tackling greenwashing, helping investors to better understand the sustainability features and potential risks associated with EGS-themed and other investment products, and ensuring that products that identify themselves as sustainability-related through their names are accurately reflecting their focus on sustainability.
PRI CEO David Atkin said:
“Responsible investment has grown significantly, and so have the expectations for clear and transparent communication. Investors need language that enables them to communicate their responsible investment practices accurately, succinctly, and consistently. By unifying around common definitions, we support our signatories and members to communicate with confidence.”
The new resource focuses on key responsible investment approaches including Screening, ESG Integration, Thematic Investing, Stewardship, and Impact Investing. Each of the terms are provided with a definition and a detailed explanation, as well as a list of terms that served as the primary inputs and reference points, and guidance for using the terms in practice.
For example, ESG Integration is defined as “Ongoing consideration of ESG factors within an investment analysis and decision-making process with the aim to improve risk-adjusted returns,” while Impact Investing is defined as “investing with the intention to generate positive, measurable social and/or environmental impact alongside a financial return.”
CFA President and CEO Margaret Franklin, CFA, said:
“Technical terminology is an important part of professional practice. New terms are always emerging alongside new ideas, and definitions evolve over time. It’s important to standardize terms and definitions as practices mature so that professionals can communicate efficiently and effectively with each other as well as with clients, regulators, and other market participants. We believe this work will serve as a valuable resource for all market professionals.”
The organizations noted that the new resource is intended for investors, regulators, policymakers, and other market participants, and is meant for application across a wide range of investment style and asset classes, both in public and private markets.
Former GSIA Chair Simon O’Connor said:
“For many years, our organizations have been working to define and clarify the language of responsible investment. This foundation of experience and expertise enabled us to come together with a common purpose to clarify and harmonize these definitions on a global scale. We now encourage the investment industry and regulators to adopt these definitions to create greater consistency.”
Click here to access the new resource.