A resource aiming to foster greater understanding and consistency in the terminology used in responsible investment has been issued by the CFA Institute, the Global Sustainable Investment Alliance (GSIA), and Principles for Responsible Investment (PRI).
For the terms ‘screening’, ‘ESG integration’, ‘thematic investing’, ‘stewardship’ and ‘impact investing’, the three organisations outlined a detailed explanation of its definition alongside a list of definitions that served as the primary inputs and guidance for using the terms in practice. The paper, which covers these definitions, is intended for use by investors, regulators, policymakers and other market participants.
The harmonised terminology contained in the joint resource responds to shifts that have taken place in the responsible investment landscape. According to the three organisations, prior versions of the definitions were, in some cases, specific to investments in listed companies. In contrast, these updated definitions are meant to 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.
“Technical terminology is an important part of professional practice. With new terms emerging alongside new ideas, definitions evolve over time,” said Marg Franklin, president and CEO at CFA Institute.
“It is important to standardise terms and definitions as practices mature so that professionals can communicate efficiently and effectively with each other as well as with clients, regulators, and other market participants. This work will serve as a valuable resource for CFA charterholders, members and candidates.”
David Atkin, CEO at PRI, added: “Responsible investment has grown significantly, and so have the expectations for clear and transparent communication. Investors need language that enables them to communicate their responsible investment practices accurately, succinctly, and consistently. By unifying around common definitions, we support our signatories and members to communicate with confidence.”
According to the three organisations, the collaboration 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, they said, contributes to efforts to address greenwashing, alongside deepening the understanding of the nuances of responsible investment approaches. It also serves to counter confusion about what different responsible investment strategies seek to achieve by clearly differentiating the objectives of approaches, such as ESG integration and impact investing.
The three organisations also emphasised that this resource does not create new terms or meanings, and that it is designed only to clarify existing terms.
“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,” said Simon O’Connor, former chair of the GSIA.
“We now encourage the investment industry and regulators to adopt these definitions to create greater consistency.”