Responsible investment refers to the sophisticated approach to investing that takes into account a broader set of risks that impact ROI, namely environmental, social, and governance risks.
ESG risks are interlinked with each other and with financial risks and the bottom line. Damage to the environment can damage a company's reputation and its Social Licence to Operate, thereby introducing operational hurdles and governance challenges, from regulatory burden and encumbering fines. These developments can lower the company's stock and increase the cost of financing further adding to market and financial risks.
Companies that take an active and thoughtful approach to improving their ESG lower their overall risk profile, an attractive proposition for investors and the target for responsible investment.
Responsible investment requires accurate environmental, social, and governance data to bring clarity to companies and investors so they can make the right strategic and tactical moves to lower their ESG risks of their operations and portfolios while improving their impact.
Beyond the fiduciary duty of asset mangers, responsible investment rewards the companies making the word a better place.