Responsible investing can be distilled into three strategies, principles alignment, relative performance, and portfolio construction and active ownership.
Investors are understandably perplexed by the proliferation of terms and strategies related to environmental, social and governance-focused investment approaches, here is an introduction to responsible investing.
So why not dispense with all the jargon and, instead, begin by identifying investors’ objectives? By doing so, rather than getting lost in definitions and terms, investors could better determine how to focus their efforts and what actions to take.
Responsible investor objectives can be distilled into the following three strategies:
1. Principles alignment – Owning only companies that reflect the kinds of activities the investor wants to see in the world.
2. Relative performance – Outperforming a commonly referenced, market-cap weighted index
Improve “real world” outcomes – Influencing companies’ environmental or social impact.
3. To achieve any of these objectives, investors in public equities have just two options: portfolio construction and active ownership.
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