With ethical finance, responsible investments, application of social and environmental criteria, the search for investments that are sustainable in every sense of the term, investing is becoming more socially and environmentally conscious, and investors increasingly activist.
First step: Help you to navigate your way through all the acronyms. CSR, SRI, ESG: let’s look at a few of the ones you’ll need to align meaning with profitability.
More and more companies are voluntarily integrating social and environmental concerns into their strategy. They hope that by integrating CSR, they can have a positive impact on society, without sacrificing their economic viability.
CSR covers four key issues to take into consideration when evaluating a company’s business operations:
- The environment.
- Social issues.
- And of course economics.
To better understand CSR, we need another acronym: ISO, which stands for the International Organization for Standardization. Based in Geneva, ISO is an independent NGO made up of national standards bodies, such as the Swiss Association for Standardization (SNV).
ISO members develop voluntary, consensus-based, market-relevant international standards that support innovation and provide solutions to global challenges.
So when you see that a company, regardless of its size, legal status, geographical location, or business sector(s), has adopted ISO 26000, you can be sure that it:
- complies with the major international founding texts such as the Universal Declaration of Human Rights and the conventions of the International Labour Organization;
- - has adopted behavioural guidelines based on seven key principles.
These principles cover:
- Organisational governance.
- Respect for human rights.
- Labour practices and working conditions.
- The environment.
- Fair practices.
- Consumer issues.
- Communities and local development.
The way in which these companies integrate these principles and values, on a voluntary and sometimes binding basis, must be disclosed to the public. That way people know where their money is going.
When it comes to investing or saving, people not only ask “How much money will I make?”, but also the more persistent question, “What is my money actually being used for?”.
SRI, or socially responsible investment, provides an answer to this question and quest for meaning.
Socially responsible investments (SRI) are investments that aim to align financial performance with social and environmental impact. Only investments in companies that emphasise their social and environmental responsibility can qualify as SRI.
To make investments that are responsible and sustainable, in every sense of the terms, an SRI fund puts priority on shares in companies that meet the following conditions:
- These companies apply environmental, social and governance (ESG) criteria to their operations, production processes, choice of raw materials and labour practices.
- They are monitored by third-party organisations that assess their compliance with ESG criteria, assign a score for their performance, and determine their ESG index.
- And of course, they show a good financial performance!
The acronym ESG stands for environmental, social and governance, and refers to criteria. This third acronym that you need to know wraps up our first step into the world of responsible saving and investing.
Environmental, social and governance (ESG) criteria are used to analyse how well these three major long-term issues are integrated into a company’s strategy and business activities.
These criteria are tools used by SRI investment managers.
Below are the specific issues covered in each area.
- Environmental impact: climate change, energy consumption, use of resources such as water and forests, CO2 emissions, pollution, waste recycling, etc.
- Social and labour environment: working conditions, respect for employees, compliance with labour laws, gender equality, quality of social dialogue, employment of people with disabilities, employee training, etc.
- Organisational governance: transparency of executive compensation, anti-corruption practices, independence and gender diversity of board members, independent audit of accounts, etc.