We regularly hear, and express, concerns over the varying definitions of values investing terms, like screening, stewardship, or ESG investing, with a hope expressed that the industry can corral around a common set of meanings. Why? For example, you have screening criteria in your investment policy and guidelines that you wish your investment manager to employ – and of course they can do screening, but later you learn it’s not positive screening and it’s only done on a limited set of criteria. Or a board member wants to pursue stewardship, sometimes called engagement, or narrowly referred to as proxy voting – so what does stewardship mean in practice, what are we talking about as a board?
Our friends at PRI, in combination with the CFA Institute and Global Sustainable Investment Alliance recently collaborated to 'refine and harmonize terminology' on key concepts in the just out Definitions for Responsible Investment Approaches. These are three large and influential organizations in the investment industry globally, so this work carries weight.
In it, the consortium target five key concepts:
Detailing the definition, ‘essential elements’, types of applications and specific guidance for employing each concept. Though on careful reading they may not be definitive to our FBAO audience. For example, they define ESG Integration as having ‘an aim to improve risk-adjusted returns.’ This is a decidedly investment manager perspective on ESG integration that we see changing as values investors use it also to express intentions in the portfolio holdings.
Their work on Stewardship is helpful, as this increasingly becomes a topic for all values investors, and is inclusive of many techniques used 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’.
As your board, committee, or staff address and/or debate these concepts, this resource should provide a good starting summary of what-it-means to set a common understanding, before delving into the implications and implementations for your specific program and values. In other words, everyone will be singing from the same hymnbook.