Over the long-term, businesses that are conforming to high standards from an environmental, social and governance point of view, and committing to genuine sustainability, are those that are also likely to have the brightest future.
At Compound Capital no stone gets left unturned. We take responsible investing very seriously. Our portfolio managers regularly engage with businesses to hold them to account and ensure they are making measurable strides towards ethics and sustainability.
Ethical investment usually refers to negative or exclusionary screening of companies engaged in activities deemed unethical by the investor or that are contrary to certain international declarations, conventions and voluntary agreements. To name a few, typical exclusions are alcohol, tobacco, weapons, nuclear power, and gross violations of human rights, or companies doing business in or with a particular country.
Socially responsible investment (SRI) refers to approaches that apply social criteria and environmental criteria in evaluating companies. Nowadays, socially responsible investors are going one step further. Apart from the aspects mentioned above, they choose to factor in whether a particular investment positively impacts society. Identifying which ventures to put their hard-earned money into can be difficult for potential investors. It is why such investors consider factors such as diversification, dividends, rate of return, inflation, taxes, and risks.
Sustainable investment refers to portfolio composition based on the selection of assets that can be defined in some way as being sustainable or possible to continue into the long-term future. Sustainable investment can also be interpreted as an uncompromising strategy that screens out assets considered to be inimical to long-term environmental and social sustainability. Examples include the majority of fossil energy based industries including tar sands and coal, too-big-to-fail financial institutions, and major investment banks.
Responsible investing can include a number of approaches to investing, including screening and ESG integration. Best in class (ESG) investment refers to the composition of portfolios by the active selection of only those companies that meet a defined ranking hurdle established by environmental, social and governance criteria. Qualified companies will be those put forward to a best in class ESG portfolio consisting of companies that meet both an ESG screen and a financial screen, generally undertaken by different teams of analysts using their own information and tools.
Thematic investment refers to the investment strategy of selecting companies that can be classified as falling under a particular investment theme. Examples of themes are water distribution, agriculture, low carbon energy, pollution-control technology, health care, climate change and information technology. In thematic investing, we use all our skill, experience and resources to seek out the companies that will be the biggest winners from these themes. By actively seeking out the themes redefining our world, we aim to put our clients on a path to stronger returns.
Green investing seeks to support business practices that have a favorable impact on the natural environment. Often grouped with socially responsible investing (SRI) or environmental, social, and governance (ESG) criteria, green investments focus on companies or projects committed to the conservation of natural resources, pollution reduction, or other environmentally conscious business practices. Green investments may fit under the umbrella of SRI but are more specific.
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