Sustainable Investments
There are a variety of terms used to describe investments with an environmental, ethical or social focus - green money, social investment, ethical investment, sustainable investment - and all of these are encompassed by the concept of sustainability.
Definition: sustainable investments supplement the traditional criteria of profitability, liquidity and security with environmental, social and ethical evaluation criteria.
Sustainable investment is the umbrella term for sustainable, responsible, ethical, social and environmental investment and all other investment processes that take the influence of ESG (environmental, social and governance) criteria into account in their financial analyses. It also presupposes the existence of an explicit written investment policy on the use of ESG criteria.
There are a variety of different investment processes:
Negative investment criteria – also called negative screening or exclusion criteria – provide the basis for an investment strategy that is used to exclude from the investment universe those industries, companies and even countries which fail to meet certain social, environmental and governance criteria, which do not fulfil the ethical claims made in their business policies or which breach international norms and standards as defined by OECD, ILO, UN and others.
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Environment |
Social |
Governance |
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Value-based exclusion criteria are those used to make decisions based on investors' own values. They include e.g.: |
Nuclear power Chlorine-based chemicals and agrochemicals Genetic engineering Biocides Controversial environmental behaviour
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Armaments Pornography Alcohol Tobacco Gambling Animal testing Exploitation of child labour
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Systematic lobbying of public institutions with the aim of lowering CSR standards Repeated/systematic corruption
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Norm-based exclusion criteria are those used to exclude companies and countries based on breaches of international norms and standards. They include e.g.:
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CITES violations Non-ratification of the Kyoto Protocol Violations of the Convention on Biological Diversity Non-ratification of the Protocol on Biosafety Exclusion of POPs (persistent organic pollutants) as defined by the Stockholm Convention Violations of other environmental treaties |
Breaches of ILO Conventions Breaches of non-proliferation treaties Breaches of the Geneva Convention Violations of human rights Violations of fundamental democratic and political rights (political participation, freedom of the press, etc.) Breaches of other international conventions. |
Violations of laws (e.g. environmental legislation, consumer protection law, legislation on accountancy fraud, equal opportunities legislation) Infringements of anti-trust law (e.g. abuse of a dominant market position) |
Positive Screening is an SRI investment approach that proactively seeks out companies in certain business activities and/or with leading business practices, based on a set of ESG criteria. This may include Best-in-Class or SRI thematic funds for instance.
SRI thematic funds may focus on sectors such as Water, Energy, or issues such as the transition to sustainable development and a low carbon economy. To be considered SRI, a thematic fund must show an explicit SRI motivation, taking into account ESG considerations in the fund construction process. This requires the existence of specific mechanisms, such as the involvement of SRI expertise in stock analysis selection, the application of an ESG screen, or the management of the product by the SRI team.
Best-in-Class is an approach where the leading companies with regard to ESG criteria from each individual sector or industry group are identified and included/over-weighted in the portfolio.
