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  • 1.  CFA, GSIA and PRI unify definitions of responsible investment

    Posted 02-11-2023 15:10
      |   view attached

    fyi - useful publication attached and link to article from ESG Clarity on responsible investment terms and definitions agreed by CFA, GSIA and PRI unify definitions of responsible investment – ESG Clarity Intelligence (

    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.

    James Doyle
    Director, Green Finance, Investment Management

  • 2.  RE: CFA, GSIA and PRI unify definitions of responsible investment

    Posted 05-11-2023 10:29

    Hi James

    I just finished reading this and made some comments that seemed pertinent at least to areas of historic confusion, on Linkedin.  I have cut and pasted below.   Anyone else have observations to make?

    So what is ESGand Responsible Investing? A new dimension in Investing?

    Some Clarity in a foggy land.

    The CFA, PRI and GSIA have put their heads together to give the investment Industry some common definitions so dialogue with stakeholders has a bit more clarity. There remains room for interpretation and other words also continue a source of confusion. 

    We do now have common definitions for five key terms used to describe aspects of responsible investment processes and which have been open to interpretation and a spectrum of use.  Collectively they allow for clearer communication of investment approach and disclosure of process. 

    πŸ’‘ Screening

    πŸ’‘ ESG Integration

    πŸ’‘ Thematic Investing

    πŸ’‘ Stewardship

    πŸ’‘ Impact Investing

    ESG integration implies a focus on Risk return maximisation. So on its own it is agnostic to directionality around impact for good. Alone it merely communicates that ESG issues are considered for their financial materiality in assessing the risk and return expected from an investment.

    Impact and positioning around sustainability will arise from the other elements of the investment process and arise indirectly or directly.

    Screening affects the investable universe which creates an impact profile different from the overall asset class. The screen may involve rules that select for sustainable or impact outcomes associated with the investments.

    Thematic investing has a clear defining element that is not always evident in investment use. Thematic investing must have a trend, so it exploits a dynamic of some kind. Thematic is often used to define an area of interest in the same way an industry or sector is defined which may not per se have a trend. It is noticeable that in many source definitions for the paper from the CFA and GSIA have definitions of thematic specifically to ESG and Sustainability while specific ESG or Sustainability trends are only a subset of possible themes and these historic definitions don't demand a trend. The PRI historic definition is more aligned.

    Stewardship stance of a firm informs the investor about how it behaves in a "good citizenship" sense to people, environment and planet. The context being the overall impact of investments on the common good of at least investors interests.  It embraces a long term perspective and a whole portfolio outcome. For universal investment portfolios this implies taking a very global and holistic view given the interconnectedness of impacts. By itself it does not mandate having a measurable positive impact or an impact that negatively affects risk return. It does require consideration of any potential harm an investment may do to the wider portfolio. So it potentially prevents investment in companies that create costs or harm to the commons for higher returns. In effect adoption of stewardship commitments adds some non-financial dimension to the duty to clients (Fiduciary duty plus if you like).  The channel of impact is principally via advocacy, engagement and dialogue.

    Impact Investing considers outcomes other than financial risk adjusted return as valuable and able to be weighed against maximising financial risk return. The definition does require that the impact sought can be measured and so quantified. I would note finding metrics and uncontested methodologies for some forms of impact may be a challenge however claims of impact investments require an attempt to quantify and report their impact.

    David Manuel

  • 3.  RE: CFA, GSIA and PRI unify definitions of responsible investment

    Posted 06-11-2023 09:29

    Thanks David - good points.  Common agreement around terms is useful.  Individual client sustainability preferences also need to be considered across the 'spectrum of capital' regarding financial returns through to philanthropy.  Not all investors have the same aims obviously hence the difference in approaches to responsible investment and also considering the importance of fiduciary duty. 

    It will be interesting to see where the final FCA SDR sustainability labels and rules due in the coming weeks help shape this and implications for investment and financial advisors.  I have seen an early indication of how one outfit Welcome to the Accord Initiative, part of ESG Accord  is trying to tackle this for client informed choices process and a suitability framework to match the proposed FCA labels - as below.  There will be other approaches also so 2024 will be interesting to see how the industry develops and incorporates FCA sustainable label definitions, as well as wider developments in the EU with SFDR review and US.

    James Doyle
    Director, Green Finance, Investment Management

  • 4.  RE: CFA, GSIA and PRI unify definitions of responsible investment

    Posted 06-11-2023 12:49
    I saw an article in RI (Responsible Investor) the other day about where The Dutch  regulator AFM backed wholesale SFDR reforms; deeply criticising the Article 8 and 9 categorisation and advising a three label approach it was difficult to tell how aligned that would be with the FCA but two grades of approach seems to lack something maybe the rainbow approach will work.  
    We are still in the late innovation phase of defining products for a good customer fit. So we should still expect some further debate before MIFID II revisions in a less dynamic subject area do show the EU can revise approach as leading National groupings campaign for change.  Taxonomy alignment is another of the global issues for what is a global industry and activity.  

    Sent from my iPhone

  • 5.  RE: CFA, GSIA and PRI unify definitions of responsible investment

    Posted 06-11-2023 13:05

    indeed - i saw that too - here's the link AFM publishes position paper on SFDR  seemed very complementary to FCA SDR labels - quite a strong recommendation from an EU National regulator (NCA) - will take a number of years, notwithstanding new European Parliament next year, for the feedback and any changes to SFDR to the European Commissions formal review but hopefully they'll be alignment in future ...eventually

    James Doyle
    Director, Green Finance, Investment Management