ShareAction, a UK-based international charity advocating for responsible investment, on Monday launched a new definition of “responsible investment” with the aim of raising standards across the financial sector while combating greenwashing and misleading claims.
The NGO’s definition goes beyond traditional ESG investing and calls on institutional investors, including pension funds, asset owners, asset managers, insurers, and banks, to take responsibility for the real-world impacts of their investments on both people and the planet.
ShareAction underlined the power of institutional investors when shaping corporate behaviour and their impact on the world. While acknowledging positive examples of investor action, its CEO Catherine Howarth highlighted “significant complacency” within 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,” said Howarth.
“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.”
‘Inadequate ambition’
ShareAction said it has identified several systemic issues that hinder the investment industry’s ability to address pressing social and environmental challenges. These issues include inadequate ambition, a narrow focus on financial risk and return, and a lack of accountability to pension savers and retail investors.
Under ShareAction’s definition, responsible Investment “is a transparent approach, embedded throughout the investment process, that takes the positive and negative impacts on people and the planet as seriously as financial risk and return.”
To support institutional investors in adopting and implementing this new definition, ShareAction has published a series of technical documents, beginning with guidance on setting net-zero emissions targets.
Howarth stressed the need for a significant increase in responsible investment ambition to address climate breakdown, nature destruction, and global health and living standards. She argued that securing these outcomes aligns with the interests of pension savers and working people whose assets are managed by the investment industry. The launch of this new definition of responsible investment aims to demand a better balance between risk, return, and impact from the investment industry to serve its ultimate clients, she said.
ShareAction commissioned a YouGov poll of 2,000 British adults, which revealed that a majority (73%) believed that environmental and social issues should be considered alongside profits. This included 30% of respondents who wanted equal weighting given to financial returns and environmental and social concerns, and 13% who believed issues affecting people and the planet should be prioritised over financial returns. Additionally, 30% of respondents wanted a focus on social and environmental issues while prioritising returns.
Four guiding principles
ShareAction’s definition encompasses four principles for responsible investment:
- Transparency: Ensuring accountability to clients and pension savers by disclosing the social and environmental impacts of investments in plain language. This should cover the actual and expected impacts of portfolio companies, how those impacts influence investment decisions, and stewardship of investee companies, including advocacy for public policy.
- Embedded throughout the organization and process: Consistently and systematically applying investment decision-making that balances risk, return, and impact across all asset classes, strategies, and funds.
- Taking responsibility for positive and negative impacts: Avoiding exposure to significant harm to people and the environment while supporting the allocation of capital to activities that generate positive impacts. Stewardship of assets should mitigate harm and promote positive outcomes across social and environmental issues for all stakeholders of investee companies.
- Considering real-world impacts as seriously as financial risk and return: Adopting objective mechanisms to ensure social and environmental impacts are evaluated alongside financial risk and return criteria, drawing on credible global frameworks like the Sustainable Development Goals.