Words matter when it comes to this space. At RBC Wealth Management, we use the umbrella term \u201cresponsible investing\u201d to describe how you can use environmental, social and governance (ESG) data\u2014or extra financial factors\u2014that can be analyzed to make more informed investment decisions. <\/p>\n\n\n\n
With a warming climate among the world\u2019s leading concerns, governments and corporations are making commitments to their communities to shoulder the responsibility of tackling this crisis.<\/p>\n\n\n\n
Many individuals also want to help slow down the disastrous effects of climate change and are turning to their investments as a way of supporting companies that place adequate emphasis on sustainable operations and responsible business models.<\/p>\n\n\n\n
As this global push toward long-term sustainability grows, it\u2019s vital to comprehend the various investment approaches\u2014and the different commitments they call for\u2014to better assess which approach fits your financial goals.<\/p>\n\n\n\n
Understanding the definitions and concepts of terms in the responsible investing and sustainability field may aid the decision-making process in verifying a firm\u2019s climate commitments and help you build your investment strategy.<\/p>\n\n\n\n
At the end of 2023, the CFA Institute, the Global Sustainable Investment Alliance and Principles for Responsible Investment issued guidance for harmonized definitions for responsible investment approaches. In an effort to address greenwashing, it aims to bring greater understanding and consistency to terminology used in responsible investing, specifically: screening, ESG integration, thematic investing, stewardship and impact investing. This resource aligns with how RBC Wealth Management approaches responsible investing.<\/p>\n\n\n\n
How it affects decisions: <\/strong>Responsible investment<\/a> is about incorporating ESG data into a portfolio through various strategies. At RBC, we focus on the four main applications to incorporate responsible investing into a client\u2019s portfolio: ESG integration, ESG screening and exclusion, thematic ESG investing and impact investing. These applications are not mutually exclusive, and they provide investors with additional choices on how to create their portfolio to help achieve their financial goals. A portfolio or product can incorporate more than one strategy.<\/p>\n\n\n\n This is the practice of incorporating material ESG factors as part of the investment decision-making process to identify and assess potential risks and opportunities that can impact long-term, risk-adjusted returns. ESG factors can be material to different types of companies. Some of these factors include:<\/p>\n\n\n\n How it affects decisions:\u00a0<\/strong>\u201cESG integration is a risk-management framework that looks at ESG factors at the same time as traditional financial analysis\u2014think enhanced fundamental analysis,\u201d says Kent McClanahan, head of Responsible Investing for RBC Wealth Management. Incorporating more data into an investment portfolio through ESG integration helps create a clearer picture to better understand the potential impacts to long-term value.<\/p>\n\n\n\n Applying positive or negative screens to include or exclude assets from the investment universe. Investors can use this application to align their portfolio with certain values or themes.<\/p>\n\n\n\n How it affects decisions: <\/strong>This is about values alignment and may include investing in line with certain principles, norms or religious beliefs. Screening identifies assets that meet a desired set of ESG-related criteria, often based on a percentage of revenue or product involvement.<\/p>\n\n\n\n When applying a screen or exclusion, a threshold is incorporated that can narrow the investable universe, potentially causing unintended consequences that may impact an investment portfolio.<\/p>\n\n\n\n Investing in assets involved in a particular ESG-related theme (e.g. water, clean energy, agriculture, sustainability) or seeking to address a specific social or environmental issue. This is where the theme of sustainability fits.<\/p>\n\n\n\n How it affects decisions: <\/strong>With thematic investing, there is an intentional allocation of capital to a specific investment theme. For example, funding in sustainable technology<\/a> (SusTech) companies, which help mitigate sustainability challenges through technology and have the potential to create long-term opportunities for companies and shareholders alike.<\/p>\n\n\n\n It emphasizes the long-term use of natural and socioeconomic resources without depleting their availability for the future.<\/p>\n\n\n\nWhat is ESG integration?<\/strong><\/h2>\n\n\n\n
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What is ESG screening and exclusion?<\/strong><\/h2>\n\n\n\n
What is thematic ESG investing?<\/strong><\/h2>\n\n\n\n
What is sustainability?<\/strong><\/h2>\n\n\n\n