Global organisations unite to standardise responsible investment terms

RIAA ESG sustainable investing responsible investment

3 November 2023
| By Rhea Nath |
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Three global organisations have come together to develop a new resource towards improving consistency in the terminology used in responsible investment.

The CFA Institute, the Global Sustainable Investment Alliance (GSIA), and Principles for Responsible Investment (PRI) have collaborated to harmonise definitions for five terms, namely:

  • Screening
  • ESG integration
  • Thematic investing
  • Stewardship
  • Impact investing

Intended for investors, regulators, policymakers and other market participants, the development of the resource is a response to noteworthy shifts in the responsible investment landscape. 

It clarifies and harmonises existing terms and definitions, and does not create new terms or meanings, the organisations said. 

Previously, various versions of these five definitions were, in some cases, specific to investments in listed companies.

“These updated definitions 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,” the organisations added.

Margaret Franklin, president and CEO at CFA Institute, noted technical terminology is an important part of professional practice. 

“New terms are always emerging alongside new ideas, and definitions evolve over time. 

“It’s important to standardise terms and definitions as practices mature so that professionals can communicate efficiently and effectively with each other as well as with clients, regulators and other market participants,” she said. 

Simon O’Connor, chief executive of the Responsible Investment Association Australasia (RIAA) and former chair of the GSIA, said: “For many years, our organisations have been working to define and clarify the language of responsible investment. 

“This foundation of experience and expertise enabled us to come together with a common purpose to clarify and harmonise these definitions on a global scale. 

“We now encourage the investment industry and regulators to adopt these definitions to create greater consistency.”

For each term, the organisations have outlined a definition, detailed explanation, a list of definitions that served as the primary inputs, and guidance for using the terms in practice, which can be found here. 

The resource coincides with the release of the Australian government’s consultation paper on its sustainable finance strategy, which has been structured around the pillars of improved transparency on climate and sustainability, financial system capabilities, and government leadership and engagement.

It outlines 12 key priorities, namely:

  • Establish a framework for sustainability-related financial disclosures.
  • Develop a Sustainable Finance Taxonomy.
  • Support credible net zero transition planning.
  • Develop a labelling system for investment products marketed as sustainable.
  • Enhancing market supervision and enforcement.
  • Identifying and responding to potential systemic financial risks.
  • Addressing data and analytical challenges.
  • Ensuring fit for purpose regulatory frameworks.
  • Issuing Australian sovereign green bonds.
  • Catalysing sustainable finance flows and markets.
  • Promoting international alignment.
  • Position Australia as a global sustainability leader.
     
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