WHAT IS RESPONSIBLE INVESTMENT?

Responsible investment involves considering environmental,
social and governance (ESG) issues when making investment
decisions and influencing companies or assets (known as
active ownership or stewardship). It complements traditional
financial analysis and portfolio construction techniques.
Responsible investors can have different objectives. Some
focus exclusively on financial returns and consider ESG issues
that could impact these. Others aim to generate financial
returns and to achieve positive outcomes for people and the
planet, while avoiding negative ones.

ESG issues that investors can consider when investing responsibly include:

ENVIRONMENTAL SOCIAL GOVERNANCE

■ Climate change ■ Human rights ■ Board structure

■ Circular economy ■ Decent work ■ Executive remuneration
■ Biodiversity ■ Diversity, equity, and inclusion ■ Tax fairness
■ Deforestation ■ Responsible political
engagement

MILESTONES IN THE EVOLUTION OF RESPONSIBLE INVESTMENT

2019
Formation of the
UN-convened
Net-Zero Asset
1968 Owner Alliance
A shareholder
1980s 1989 1999 2015
proposal seeking to
Widespread Investors and Launch of United Nations
stop Dow Chemical
disinvestment other stakeholders Dow Jones sets the 2021
Company from
from South publish the Sustainability Sustainable A Legal Framework
manufacturing
Africa in protest CERES Principles Indices Development for Impact report
napalm sparks
of apartheid following the Goals (SDGs) published
debate over
Exxon Valdez oil
shareholder rights
spill

1971 1990 2008 2017 2020

Launch of Pax Launch of the World Bank Launch of The CEO of Rio
World Fund, Domini 400 Social issues first Climate Action Tinto resigns amid
the first socially Index, one of labelled green 100+, the largest- pressure from
responsible mutual the first socially bond ever collaborative stakeholders,
fund in the US responsible indices corporate including
2006 engagement by investors,
Launch of the investors following the
Principles for destruction of
Responsible sacred Indigenous
2017
Investment (PRI) sites
The Task Force on
Climate-related
2005 Financial Disclosures
Freshfields report (TCFD) releases
on ESG integration initial disclosure
and fiduciary duty recommendations
published

2
 AN INTRODUCTION TO RESPONSIBLE INVESTMENT

WHY INVEST RESPONSIBLY?

Several related, and in some cases overlapping, forces are FINANCIAL MATERIALITY
driving the growth of responsible investment. These include:
Increasing amounts of industry and academic research1
indicate that there is a relationship between ESG issues
and financial performance. PRI-commissioned research has
Financial also found that engaging with companies on ESG issues
materiality can create value for the businesses and their investors by
encouraging better risk management and more sustainable
practices.

Principles for Sustainability issues can significantly impact market and

Client
Responsible
demand portfolio returns and in some cases, pose risks beyond a
Investment
single company, sector or geography.2

Sustainability Policy and

outcomes regulation

Fiduciary
duties

Examples of financially material ESG incidents and sustainability issues

2019 2020 2021 2022

A dam owned by the mining
company Vale collapsed. The
disaster resulted in the deaths
of at least 270 people and
caused extensive damage
to the local community and
environment. The company
has paid over US$7bn to settle
related claims.
The payments firm Wirecard
filed for insolvency amid
accusations of accounting
fraud linked to corporate
governance failings.
The World Health A French court upheld
Organization declared the charges of complicity in
COVID-19 outbreak a global crimes against humanity
pandemic. Limited investment against the cement
in pandemic preparedness company Lafarge in
by governments, companies relation to actions it took
and other institutions prior to to keep its €680m plant in
the outbreak contributed to Syria operating following
a sharp contraction in global the outbreak of civil war.
GDP.

1 See, for example, Mozaffar Khan et al. (2016) Corporate Sustainability: First Evidence on Materiality and Robert G Eccles et al (2014), The Impact of Corporate Sustainability on
Organizational Processes and Performance
2 See, for example, Ravi Bansal et al. (2016) Price of Long-Run Temperature Shifts in Capital Markets and OECD (2014) Trends in Income Inequality and its Impact on Economic Growth.