SRI, ESG, But what do they really stand for?

ESG, SRI

SRI, … ESG, … These terms surely ring a bell … But what do they really stand for? By investing in SRI funds, you are opting for companies that play their part in the sustainable growth of the economy, support social improvements and contribute to the well-being of future generations.

Sustainable and Responsible Investing is a long-term focused investment approach that systematically integrates environmental, social and governance, in short ESG, considerations into investment research and analysis in order to inform the selection process of securities and the investment strategy of a portfolio.

As sustainability means different things to different people, defining the concept from an investment perspective is challenging. The drivers behind sustainable and responsible investing are multi-faceted.

RESPONSIBLE INVESTING – Some investors focus more on “responsible” and align their investment decisions with ethical, religious or cultural considerations and principles. They feel morally responsible and accountable for their actions when investing to the extent that the social or environmental impact may be equally or even more important than financial considerations.

SUSTAINABLE INVESTING – Others focus on sustainability by assessing the environmental, social and governance risks and opportunities in order to generate better long term risk-adjusted returns. Sustainable is about maintaining and conserving in the long run. Hence, sustainable investing focuses on fostering sustainable economic development and growth. Put simply, sustainable investing consists in the integration of ESG dimensions into company analysis and investment decisions to better manage risks and/or generate sustainable long-term returns. Whilst the factors considered, the way to integrate them, and the outcome on portfolios are several, the inclusion of these extra-financial considerations together with engagement forms the basis of any sustainable investment approach. As a consequence, it should be pursued even by those investors whose sole purpose is financial performance.

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