Responsible Investing Approaches
There are many different terms associated with responsible investing - such as ethical, sustainable and ESG (environmental, social and governance) investing. Each has a slightly different focus, but most concentrate on either positively supporting a cause or actively avoiding controversial activities.
Each individual follows their own moral compass, pursuing their own concept of what is ‘responsible’, ‘ethical’ or indeed ‘valuable’. It is therefore inevitable that no one strategy or simple definition can fully define a ‘responsible investment’.
That said, investors do tend to converge on certain key negative and positive issues. As a result, a few fundamental approaches can be applied – and the most effective investments tend to combine all of them.
Negative screening: saying no
This axiological approach enables you to rule out early on the industries in which you’d rather not invest. For example:
- The arms trade
- Nuclear power/fuel
- Repressive regimes
- The tobacco industry
- Anti-trade-union activity
- Companies with poor human rights records
- Third World debt/exploitation
- Unnecessary animal experimentation or cruelty
Positive screening: good reasons to invest
With this approach, responsible investors can actively seek to fund only those companies that reflect their own values and standards. These might be companies whose products or services are of long-term benefit to the communities and/or environments in which they operate, with attributes including:
- A progressive approach founded on strong environmental and employment practices
- Openness about their activities
- Use of environmental technologies including renewable energy and pollution control
- Energy conservation
- Sustainable forestry
- An equal opportunities policy
- Provision of social housing and community regeneration
To learn more about how we approach the screening of investments within our B.E.S.T. Sustainable fund range, please watch this short video here.
Dialogue and engagement
Many companies list “keeping the shareholders happy” as one of their primary objectives. While this may ostensibly mean producing excellent profits, shareholders can also use their influence to encourage more responsible business standards.
This approach requires active engagement on the part of the shareholders and can be done directly – for example through meetings and voting at the AGM – or through fund managers who work on specific companies and sectors. It can also be done either separately or in conjunction with screening.
Fund managers will engage on areas such as:
- Inappropriate remuneration
- Unfair labour practices
- Social responsibility
- Climate change
Click here to view our statement confirming commitment to the FRC Stewardship Code
To ensure you make the most financially and morally astute investments, we want to help you select companies that are planning ahead to address global challenges and create a better environment.
The ‘B.E.S.T’ approach
At Castlefield we’ve developed our own holistic approach to responsible investment. This means that our investment selections are based not just on traditional financial criteria, but on a range of other critical success factors too. These can be summarised as:
B: Business and financial considerations. What types of returns or performance targets does the investment hope or propose to achieve? These can be thought of broadly as the sorts of criteria a traditional investment manager would seek to identify.
E: Environmental and ecological considerations. Does the investment make any claims in terms of the environment? If so, how valid are they? After assessing this, we determine the influence that the investment would have on the environment and the world at large.
S: Social considerations. Does the investment aim or claim to have a positive social influence? If so, what is this influence and how can it be observed?
T: Transparency. Are any claims or aims observable and/or measurable? Can we understand how the investment is supposed to generate the target return? Is the company or fund open with investors and does it take their views on key issues into account?
By using our B.E.S.T approach, we can take a holistic look at proposed investments, whilst never losing sight of the need to produce sound financial returns. Ultimately, successful long term investment is about balancing available return with risk. In our view, responsible investment is the best way of achieving this.