ShareAction has issued a challenge to the financial sector to use its new definition of ‘responsible investment’ in a bid to raise standards, and help prevent greenwashing and misleading claims.
The campaigning charity’s 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 intends for the new definition to actively call on institutional investors, such as pension funds and other asset owners, asset managers, insurers and banks, “to take responsibility for the real-world impacts of investments on people and planet”.
The campaigning group said there is evidence of widespread public support for the move, pointing to a recent poll of 2,000 adults it commissioned with YouGov.
The majority (73%) of respondents said environmental and social issues should be considered alongside profits.
This included 30% who want financial returns and environmental and social concerns to be given equal weighting, and 13% who believe issues affecting people and planet should be prioritised over financial returns.
At the same time, 30% want some focus on social and environmental issues while prioritising returns.
ShareAction said “systemic issues” are holding back the investment industry’s potential to act on social and environmental challenges.
It highlights among these, inadequate ambition, a narrow focus on financial risk and return, and a lack of accountability to pension savers, retail investors and other underlying investors.
To support institutional investors in adopting and implementing the new definition, ShareAction will publish a series of technical documents, starting next week with guidance on net-zero emissions target setting.
Catherine Howarth (pictured), CEO of ShareAction, said: “Institutional investors have extraordinary power to influence how companies behave and the impacts they have on the world we live in.
“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.”
She added: “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.”
ShareAction’s definition incorporates four principles for responsible investment.
Transparency is the first, where ShareAction wants disclosures made in plain English to cover the actual and expected impacts of portfolio companies, how they are factored into investment decisions, and stewardship of investee companies, including an approach to public policy advocacy.
Second is a requirement to embed responsible investment throughout the organisation and process, with investment decision-making that balances risk, return and impact consistently and systematically applied across the investment organisation, covering all asset classes, strategies and offered funds.
ShareAction also wants asset managers to take responsibility for positive and negative impacts on people and the planet, with investment decisions that avoid exposure to serious harm to people and the natural world, while supporting the allocation of capital to activities that enable positive impacts.
Finally the investor campaign group wants asset managers to “take 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, it said.
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.