The finance sector is being challenged to adopt an ambitious new definition of ‘responsible investment’ in a bid to raise standards across the industry and help stamp out greenwashing.
Campaigning charity ShareAction is calling on institutional investors – including pension funds, asset managers, insurers and banks – to officially adopt its wording and take responsibility for the real-world impacts of investments on people and the planet.
ShareAction’s new definition is: “Responsible Investment is a transparent approach, embedded throughout the investment process, that takes the positive and negative impacts on people and planet as seriously as financial risk and return.”
ShareAction has uncovered systemic issues holding back the investment industry’s potential to act on pressing social and environmental challenges – in particular inadequate ambition, a narrow focus on financial risk and return, and a lack of accountability to pension savers, retail investors and other underlying investors.
‘A step change is needed’
To support institutional investors in adopting the new definition and putting it into practice, ShareAction is to publish a series of documents, starting with guidance on net-zero emissions target setting.
Catherine Howarth OBE, Chief Executive of ShareAction, said: “Institutional investors have extraordinary power to influence how companies behave and the impacts they have on the world we live in. We see many examples of investors stepping into their power to drive positive action, for example on emissions cuts, the payment of Living Wages and more. But we also see significant complacency in the investment community.
“A step change in responsible investment ambition is needed if we’re to halt climate breakdown, prevent the destruction of nature, and ensure decent health and living standards for people around the world. Securing those outcomes has strong support from working people whose pension assets are managed by the investment industry. In launching this new definition of responsible investment, we’re demanding the investment industry balance risk, return and impact to better serve the interests of its ultimate clients.”
Investors want principles alongside profit
The move comes as a new poll commissioned by ShareAction reveals that the majority (73 per cent) of investors want environmental and social issues to be considered alongside profits.
This includes 30 per cent who want financial returns and environmental and social concerns to be given equal weighting and 13 per cent who believe issues affecting people and planet should be prioritised over financial returns. At the same time, 30 per cent want some focus on social and environmental issues while prioritising returns.
ShareAction’s definition incorporates four principles for responsible investment:
- Transparency. Enabling real accountability to clients and pension savers about the social and environmental impacts of investments made on their behalf. Disclosures made in plain English should cover the actual and expected impacts of portfolio companies, how those impacts are factored into investment decisions, and stewardship of investee companies, including an approach to public policy advocacy.
- Embedded throughout the organisation and process. Investment decision-making that balances risk, return and impact should be consistently and systematically applied across the investment organisation, covering all asset classes, strategies and offered funds.
- Takes responsibility for positive and negative impacts on people and planet. Investment decisions should avoid exposure to serious harm to people and the natural world whilst supporting the allocation of capital to activities that enable positive impacts. Stewardship of assets should mitigate harms and encourage positive outcomes for all companies’ stakeholders, across social and environmental issues.
- Takes real-world impacts as seriously as financial risk and return. Investors should adopt objective, coherent mechanisms to ensure social and environmental impacts are considered alongside financial risk and return criteria, informed by credible global frameworks such as the Sustainable Development Goals.
Alongside this definition, ShareAction is pushing for reforms to financial regulation in the UK and EU to unlock the potential of the investment sector to address social and environmental challenges.