Terminology and other jargon

The investment industry is swamped with jargon. Sadly, ethical investing is not the exception to this rule. 

But, fear not! Below we have compiled some widely used terms and their definitions to help you navigate this evolving marketplace.

Socially Responsible Investing (SRI)

This is a pragmatic approach to ethical investing. It is more flexible than ESG and focusses on making positive change in a number of ways.

Of the approaches below, positive screening, engagement investing and best-in-class are examples of socially responsible investing (SRI). 

Environmental, Social & Governance (ESG)

ESG is a term that is used in some markets in place of ‘integrated analysis’ to refer to investment that uses environmental, social and governance factors to improve financial analysis.

Sustainable Development Goals (SDGs)

The Sustainable Development Goals are the blueprint to achieve a better and more sustainable future for all. They address the global challenges we face, including poverty, inequality, climate change, environmental degradation, peace and justice. There are 17 SDGs and more information can be found here.

Shades of green

Frequently ethical investors describe their investments in shades of green. This is not directly related to the investments environmental credentials. 

Instead, where an approach is described as 'dark green', it will have very strict approach, avoiding any company  that does not meet a set criteria.

Conversely, if an approach is light green, it may invest in a number of companies which do not fit a 'strict guideline'. 

Dark green investments

Where an approach is described as 'dark green', it will have very strict screening approach, avoiding any company or industry that does not meet it's criteria or it's clients values.

Dark green funds are the stricter type of investment, ideal for investors with strong convictions about corporate activities they oppose. They tend to exclude companies whose behaviour is deemed unacceptable.

Light green investments

Light green funds employ positive standards for selecting stocks. They take  a more pragmatic approach than the exclusionary dark green method. 
If an investment is described as 'light green' this does not mean it is not ethical. Approaches such as impact investing, engagement investing and activist investing can fall into this 'lightt green' bracket.

Negative screening

This is where investors screen out companies (aka "sin stocks") that do not comply with a set criteria. This type of ethical investing is known as an avoidance based approach.

The most common exclusions are tobacco, adult entertainment, gambling, alcohol and armaments. This list is not exhaustive and is based on client or fund discretion. 

Negative screening is one of the earliest forms of ethical investing. 

Positive screening

This approach tries to include companies that add something to the community, that have good corporate governance and business practices. They can also be companies that show leadership through their environmental and social policies.

Rather than an exclusionary approach, Positive Screening aims for an inclusionary approach. 

Investors aim to select companies who display the positive attributes they are seeking.

Sustainable investing

An investment strategy which seeks to consider both financial return and social/environmental impact to bring about a long term positive change. 

It usually focuses on corporate stability over the long run and seeks companies that should withstand E,S,G risk - or even those that actively manage it successfully. 

This approach tends to invest in stable 'socially conscious' companies e.g. Unilever.

Impact investing

Investing in order to achieve a specific objective and goal. These often require a large amount of capital and tend to be project focussed e.g. goal of increasing social housing thus invest in a project to deliver this provision.

They tend to have lock-in periods and can have lower returns than other approaches due to their philanthropic nature. 

Engagement investing

This is where investors, usually fund managers, undertake active engagement/discussion with companies to encourage more ethical behaviour. This approach believes that results can be gained much more quickly than a simple boycott.

These discussions vary across firms depending on the importance of major ethical factors to the business i.e. Environmental impact is more pertinent to Oil Majors than Law Firms.

Funds and investors can also work in consortium with other like-minded investors to achieve the desired aims. 

Activist investing

This approach is where investors purchase a large number of shares (individually or as a group) to obtain seats on the board of an organisation. These 'activist' investors attempt to effect major changes within a company.

This approach can require substantial capital but can be highly influential. 

Norms-based investing

This method involves investing in companies which adhere to globally accepted norms, as identified by international bodies. 

These internationally accepted ‘norms’ tend to be directed by frameworks such as the UN Global Compact, the Kyoto Protocol, UN Declaration of Human Rights and the UN Sustainable Development Goals. 

Values-based investing

Investment focussing primarily on the investor's beliefs and values with returns as a secondary consideration.

Client values are the main objective for investment – whether these are about the environment, society, sustainability or faith.

Thematic investing

Under this approach, investments are selected because they adhere to a specific theme that arises from the pursuit of sustainable development.

Ethical themes can include ecology related investments, clean technology companies, a gender equality focus etc. 

Examples of thematic funds include Pictet Water, Jupiter Ecology and Robeco Smart Energy. 

Best-in-class

This ethical investing approach is a comparative investment style that involves investing only in companies that lead their peer groups in respect of environmental and social performance. 

A firm may not be considered as a leader in social practices, but versus it's direct peers, it may be industry leading, thus would qualify for investment. 



Corporate Governance

Corporate Governance involves the execution of the responsibilities of share ownership. Practical execution of corporate governance typically involves the execution of voting policy and challenging the policies and processes a company has in place.

Corporate governance is highly important to ensure managers avoid abusing their power or undertaking improper actions that could result in questionable behaviours and practices within organisations.

Community investing

This is where the provision of capital and financial services is given to communities that are underserved by traditional financial services and particularly to low-income individuals, small businesses and community services such as child care, affordable housing, and healthcare.

Microfinance

Investing in the equity of microfinance institutions that promote local economic development at the ‘bottom of the pyramid’ through the issuance of ‘micro-loans’ and ‘micro-insurance’.

Paris and Sophia have worked in the investment industry for many years but are not regulated to give  any other form of investment advice. We are also not regulated by the industry watchdog. Virtuvest is an educational and ethical guidance website only; it aims to connect investors, not advise them. Whilst we make every effort to ensure our information is up to date and accurate we can not be held responsible for decisions made using our services or those linked to our sites. Should you wish to seek ethical investment advice, please reach out to a qualified investment practitioner.