Responsible Investment terminology

What are you talking about?

To help you find your way through the (sometimes confusing) world of Responsible Investment here is a short list of terms and abbreviations.

Best of Sector: These funds invest in all industries, but choose only those companies considered to have the most successful environmental, social and governance performance out of their peer group. The guiding influence of this style is that all industries should strive toward sustainability and the management of environmental, social and governance risks including those industries considered to be harmful.

Certified by RIAA: RIAA’s Certification Program is the first of its type in the world. It is designed to help you compare RI products and providers so you can make informed choices. If you see the Certification Symbol you know that the licensee has adopted appropriate educational and disclosure practices. It helps you to identify products and services that take environmental, social, governance or ethical issues into account which have also been certified by RIAA.

Clean Energy: Energy from sources that do not pollute such as solar, wind, geothermal.

Cleantech: Technologies that support increased productivity or profitability while reducing resource consumption and pollution.

Climate Change: Changes in the earth’s climate, especially those produced by global warming.

Corporate Governance: Code of behavior that defines guidelines for the transparent management and control of companies.

Corporate Social Responsibility (CSR): A commitment to honour a corporate’s responsibilities to its various stakeholders and behave in a way that contributes to economic development while improving the quality of life of employees, their families, and the community at large.

Energy Security: Stability of a country’s reliable supply of affordable energy.

ESG: Environmental, social and (corporate) governance issues.

ESG Analysis: Environmental, social and governance (ESG) analysis is a process undertaken by mainstream investment organisations to determine the extent to which these issues will affect the risk and return of a particular company or investment opportunity. This research is then integrated into the traditional valuation process, asset allocation methodology or voting and engagement practices.

Global Warming: Sustained increases in the average temperature of the earth’s atmosphere now understood to be caused by additional heat being trapped by greenhouse gases.

Managed Fund: An investment fund that is managed professionally by an expert fund manager who invests in a variety of investments. The actual type and mix of investments within the fund depends on a predetermined mandate communicated by the Fund Manager. Your money is pooled together with that of other investors to create a single fund that provides significant investor benefits, which include: diversification of risk, professional management, access to international markets and investments, and convenience.

Negative Screening: This method avoids certain types of investments. Tobacco, armaments, alcohol, uranium, animal testing and gambling, or companies which have an adverse impact on the environment are those most commonly identified. Negative screening allows investors to ensure their values are in line with their investments. For instance, some investors may specifically wish to avoid companies engaged in gaming. Others will draw the line at companies engaged in uranium mining or tobacco.

Positive Screening: Seeks out companies deemed to have a positive impact on society and the environment. This could include water and waste management, renewable energy, energy efficiency, sustainable agriculture, forestry and fishing, microfinance, mass transport, sustainable property, affordable housing, education, aged care and health care. Positive screening is an important tool for responsible investors who want their money to be used in business and industries that will benefit society and the world we live in.

Renewable Energy: Energy generated from natural resources such as sunlight, wind, rain, tides and geothermal heat which are naturally replenished.

Responsible Investment: An umbrella term to describe an investment process that takes into account environmental, social, governance or ethical considerations. This approach stands in addition to or is incorporated into the usual fundamental investment process. Other terms frequently used to describe this investment approach include ethical investment, sustainable investment or green investment.

Shareholder Activism: Some funds actively engage with the companies they invest in to seek improvements on their environmental, social and governance performance. This is another way in which responsible investors use their collective influence to seek positive outcomes at an organisational level.

Sustainability: A means of configuring human activity so that society, its members and its economies are able to meet their needs and express their greatest potential in the present, while preserving biodiversity and natural ecosystems, planning and acting for the ability to maintain these ideals in the very long term.

Sustainability Analysis: Describes a process that takes ESG risk and return issues into account, but also looks at the sustainability of outcomes the investment achieves.

Thematic Investments: Concentrate on investments that adhere positively to a particular sustainability theme such as environmental technology, management of climate change risks, sustainable agriculture and forestry, water technology, waste management, sustainable property and infrastructure, human rights, microfinance or governance. This category also includes multi-strategy portfolios that may contain a variety of themes.

United Nations Principles for Responsible Investment (UNPRI): A framework for institutional investors which helps them manage money in the best interests of their constituents by recognising that environmental, social and governance issues can affect the performance of investment portfolios.

Voting Rights: Using shareholder voting rights is another powerful way to achieve improved ESG performance. It may be difficult to achieve a majority vote for resolutions based on environmental or social issues but a positive vote of about 15% or more is often enough to capture the attention of a corporate board and to affect change. Funds that are “active owners” will exercise their right to vote and their right to raise resolutions in order to achieve better management outcomes.

Information appearing on this page was kindly provided by the Responsible Investment Association of Australasia.


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