Shining a light on responsible investment

Written on 12 Feb 2020

In November 2019, the Investment Association (IA) published its Responsible Investment Framework, which aimed to categorise, define and harmonise common investment terms in order to bring "clarity and consistency" to the industry's approach to Responsible Investment.

The framework separates out distinct components for a firm-level and a fund-level approach to responsible investing. These components are included in the new glossary and define terms such as 'stewardship', 'ESG integration', 'exclusions', 'sustainability focus', and 'impact investing'.

What should firms do?

Firms are encouraged to adopt the framework and the definitions, not only to create a common language that investors can use to identify investments that share their values, but also because the IA intends to use this framework to produce statistics on funds with responsible investment characteristics.

Since the start of the year, the IA has been asking firms to state which of their funds should be identified as having the various responsible investment components under these new definitions. The results are due to be released later in the year.

A step in the right direction

This framework signifies just one step in response to the IA's industry-wide consultation last year on sustainable and responsible investment. The IA is continuing to explore the creation of a standardised UK retail product label to further clarify to investors which funds have adopted the responsible investment approach.

This is a welcomed start from the IA, but what remains to be seen is how this common language and the proposed product labelling will deal with the inherent subjectivity of responsible investing and the varying grades of 'responsibility' that investors are currently having to pick through to identify what is truly a responsible investment.