Industry bodies agree standardised responsible investment definitions

The guidance provides five key definitions for responsible investing terms: screening; ESG integration; thematic investing; stewardship; and impact investing.

It aims to clarify these existing terms, rather than create new ones, to counter confusion about what different responsible investment strategies seek to achieve by clearly differentiating the objectives of the approaches.

The guidance is intended as a resource for investors, regulators, policymakers, and market participants, offering clear definitions for responsible investment approaches rather than criteria for product labelling or categorisation. 

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Screening is described as applying rules based on defined criteria that determine whether an investment is permissible. ESG integration is described as an ongoing consideration of ESG factors within an investment analysis and decision-making process with the aim to improve risk-adjusted returns.

Thematic investing is defined as selecting assets to access specified trends. Stewardship is designated as the use of investor rights and influence 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.

Finally, impact investing is described as investing with the intention to generate a positive, measurable social and/or environmental impact alongside a financial return.

It is acknowledged in the guidance that these responsible investment approaches are not mutually exclusive and are frequently used in combination.

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According to the authors of the project, the move to clarify responsible investing definitions was inspired by calls from regulators for voluntary standard setters to develop common terms and definitions, to ensure consistency throughout the global asset management and wealth management industries.

Promoting the consistent and precise use of terminology also contributes to efforts to address greenwashing, the bodies involved said.

Each of the five terms has its own section in the guidance, featuring the essential elements that outline the core concepts necessary for its definition, practical guidance on using the term, and the primary references that influenced the work.

The aim of the project is that these essential elements serve as a basis for comparing different definitions for the same term, enabling equivalence even when wording differs, and help achieve consistency when translating definitions into other languages.

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The harmonised terminology contained in the joint guidance responds to shifts that have taken place in the responsible investment landscape, its authors said.

“Prior versions of the definitions were, in some cases, specific to investments in listed companies. These updated definitions reflect the reality that responsible investment approaches can be applied to a wide range of investment styles and asset classes, spanning both public and private markets,” the guidance stated.

Simon O’Connor, former chair of the GSIA, said: “For many years, our organisations have been working to define and clarify the language of responsible investment.  This foundation of experience and expertise enabled us to come together with a common purpose to clarify and harmonise these definitions on a global scale. 

“We now encourage the investment industry and regulators to adopt these definitions to create greater consistency.”