Frequently asked questions:
What are the differences between ESG and SRI investing?ESG provides a more general outlook on potential investments’ sustainability and SRI investing looks into the investor’s specific concerns, taking a more values-based investing approach. Mainly, SRI helps screen investment options based on the investor’s moral, ethical and religious values.
What is the difference between ethical investing and ESG/SRI investing?Ethical investing is a practice that gives individuals the power to invest their capital toward companies that have their practices and values aligned to their personal ethical values and beliefs. Often it means filtering out certain types of companies and sectors. This type of investment gives investors the opportunity to channel their money into companies whose practices and values match their personal beliefs.
What is the difference between ESG/SRI and impact investing?ESG investing is the practice of investing in companies that meet certain environmental or social criteria and SRI avoids investing in certain industries and sectors. Impact investing goes a step further than ESG and SRI by actively seeking to create positive social or environmental impact alongside financial returns. Impact investments often focus on sectors like renewable energy, affordable housing, and healthcare. Impact investing allows investors to support businesses making a difference and a positive impact by seeking out sustainable and responsible investment options.
What is the difference between positive and negative screening?In positive screening, investors may consider the “best in class” company within a specific sector, including controversial sectors as long as they can demonstrate the best ESG credentials in their area of business, whilst negative screening excludes companies working in sectors that might be harmful to the environment or society.
What is greenwashing?‘Greenwashing’ is the term used for companies, fund managers and others that mislead their clients by making false or overstated claims about a fund’s or company’s environmental standards.
What is SFDR?
SFDR (Sustainable Finance Disclosure Regulation) is an EU regulation that is intended to make it easier for investors to distinguish and compare between the many sustainable investments that are now available within the European Union. The EU SFDR aims to help investors by providing more transparency on the degree to which financial products consider environmental and/or social characteristics, invest in sustainable investments or have sustainable objectives. This information is now being presented in a more standardised way.
The EU SFDR requires specific firm-level disclosures from asset managers and investment advisers regarding how they address two key considerations: Sustainability Risks and Principal Adverse Impacts. With regards to asset managers, the EU SFDR also mandates transparency of remuneration policies in relation to the integration of sustainability risks. In addition, the EU SFDR aims to help investors to choose between products by mandating increasing levels of disclosures, depending on the degree to which sustainability is a consideration.
Three different product categorisations result from EU SFDR:
- “Article 6” products either integrate environmental, social and governance (ESG) risk considerations into the investment decision-making process, or explain why sustainability risk is not relevant, but do not meet the additional criteria of Article 8 or Article 9 strategies.
- “Article 8” products promote social and/or environmental characteristics, and may invest in sustainable investments, but do not have sustainable investing as a core objective.
- “Article 9” products have a sustainable investment objective.