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Responsible MoneyYesterday


TRIO OF INDUSTRY GROUPS STANDARDISE ESG DEFINITIONS

Supported by

Supported by
The new guidance standardises five responsible investment terms: screening, ESG
integration, thematic investing, stewardship and impact investing (Kelly/Pexels)
ByChloe Cheung
0


Three groups in the investment industry have come together to standardise the
way they define responsible investment.

Article continues after advert





The CFA Institute, Global Sustainable Investment Alliance and the Principles for
Responsible Investment have jointly issued new guidance today (November 1) that
aims to enhance consistency in responsible investment terminology.

The guidance paper defines five different approaches to responsible investment,
namely:

 * Screening: applying rules based on defined criteria that determine whether an
   investment is permissible.
 * ESG integration: ongoing consideration of ESG factors within an investment
   analysis and decision-making process with the aim to improve risk-adjusted
   returns.
 * Thematic investing: selecting assets to access specified trends.
 * Stewardship: the use of investor rights and influence to protect and enhance
   overall long-term value for clients and beneficiaries, including the common
   economic, social and environmental assets on which their interests depend.
 * Impact investing: investing with the intention to generate positive,
   measurable social and/or environmental impact alongside a financial return.

Besides the definitions above, the paper includes a list and explanation of the
definition’s ‘essential elements’, as well as guidance for using the term in
practice.

“What we discovered is that it’s important to go into more explanation,” said
Chris Fidler, head of global industry standards at CFA Institute.



“You can’t just have a word and a short little pithy definition, because all
definitions are circular. You’re using words to define words, and words are
ambiguous at the end of the day.”

“So we came up with a mechanism, which was to define the essential elements of
each of these terms.”

For example, the essential elements of the term ‘screening’, which the paper
then goes on to further explain, are:

 * Applying rules
 * Based on defined criteria
 * That determine whether an investment is permissible

“These are the concepts that are necessary and essential to get the real
conceptual grasp of what we’re talking about,” Fidler says.



“An example I’ve used in the past when I’ve been explaining this, is like the
word ‘mortgage’. If you boil it down, there’s three important things about a
mortgage: it’s a loan, it’s secured, by real estate. And we could then explain
what each one of those things mean.

“If you understand what each of those concepts are, and you roll those all up,
then you understand what a mortgage is. And if you omit one of those core
concepts, then you might have an incomplete understanding of the word.”

According to the CFA Institute, the collaboration between itself, the GSIA and
PRI was inspired by calls from regulators for voluntary standard setters to
develop common terms and definitions.

The CFA Institute said the harmonised terms respond to shifts in responsible
investing; and that previous versions of the definitions were, in some cases,
specific to investments in listed companies.

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