Smart investors have long known that there is more that drives investment returns that just what is reported in financial reports.
They understand that companies or assets won’t thrive whilst ignoring environmental issues (pollution, climate change, water and other resources scarcity), social issues (local communities, employees, health and safety), corporate governance issues (prudent management, business ethics, strong boards, appropriate executive pay) or ethical issues.
Responsible investment, also known as sustainable or ethical investment, is a broad-based approach to investing which factors in people, society and the environment, along with financial performance, when making and managing investments.
Examples of responsible investing vary broadly and could include:
– divesting from a company with a poor human rights record
– engaging with a company included in an investment portfolio around its exposure to carbon intensive industries
– making an investment in a program or social enterprise that is focused on tackling a pressing social or environmental issue
– analysing and selecting a portfolio of companies to invest in based on their overall environmental, social and governance performance
Investors engage in responsible investing for a range of reasons including: to align investments with their own or their clients’ personal values and ethics; to reduce risk; and to achieve strong financial returns in the short and long term. All kinds of investors can be responsible investors, whether they are individuals choosing where to put their savings or superannuation; a trustee of a trust or foundation; or an institutional investor such as a super fund, fund manager, bank or asset manager.
