ShareAction: redefining responsible investment principles

We’re redefining responsible investment principles to support a better future for people and planet

In the face of a climate emergency, grotesque inequalities and accelerating nature loss, we’re challenging the finance sector to adopt a bold new approach and change the nature of responsible investment for future generations

Catherine Howarth OBE, ShareAction’s Chief Executive

For more than 15 years ShareAction has been working to build a world where the financial system serves our planet and its people. I’m proud of the role we’ve played in helping to shift approaches to boost responsible investment. For instance, governments and regulators have tightened financial rules to require asset managers, pension funds and banks to pay more attention to social and environmental issues. Meanwhile, public demand for responsible investment has soared and we’ve seen the financial industry responding with new products and policies that do a better job of aligning with people’s values.

But the progress we’ve seen is simply too little for the times we live in. The trillions of dollars invested across global markets aren’t yet being harnessed to drive the profound changes the world needs: decarbonisation of the global economy, a ban on toxic activities that devastate vital habitats and wildlife, and urgent action to improve people's health and ensure decent living standards for the poorest communities.

Responsible investment’s potential to power these changes is being held back by the financial sector’s low ambition and dangerously narrow focus on profit maximisation. There’s an alarming lack of accountability and too little transparency. So, it’s no surprise people are confused about what is socially responsible investing. We’ve entered an era of rampant greenwash and misleading claims. It’s far too hard for the public to know what to believe and who to trust.

Today, we’re launching an initiative to change that.

To raise standards across the financial sector, we’re urging investors to adopt an ambitious new definition of responsible investment.

What is responsible investment?

Responsible investment is a transparent approach, embedded throughout the investment process, that takes the negative and positive impacts on people and planet as seriously as financial risk and return.

We want these principles to change the nature of investment now and for future generations, so that it truly benefits people everywhere and protects the vital ecosystems we all need to thrive.

This new flagship standard for responsible investing goes far beyond the financial industry’s current tepid approach to sustainable and ESG investing, which bases decisions on a narrow, financially focused perspective on environmental, social, and governance risks. We’re calling on major investors such as asset management firms, pension funds, and insurance companies to take deeper responsibility for the real-world impacts of all their investments on people and planet.

Taking this higher-ambition approach to responsible investment isn’t just the right thing to do, it’s also in line with what the public expects.

A new YouGov poll of 2000 British adults shows that people have a strong moral compass when it comes to how their money is invested, and they want to know more about what is going on. The majority of those asked believed that their financial providers should consider environmental and social issues alongside returns.

Higher standards of responsible investment will boost public trust in finance. Fifteen years after the 2008 financial crisis, trust remains low in large financial institutions despite the enormous control they have over people’s money and savings. Raising standards is in everyone’s interest.

What does responsible investment look like in practice?

By taking positive and negative impacts on people and planet as seriously as financial return, large investors can drive action to tackle the problems caused by unsustainable and exploitative business models. For example, just 100 companies are responsible for over 70 per cent of global carbon emissions. Big investors in such companies hold the key to tackling the climate crisis by pushing these corporate giants to decarbonise. Investors can also mobilise money to invest in well-proven low-carbon solutions and provide finance to companies that need to rapidly scale their use of solutions to achieve timely transition.

Precarious work is on the rise and millions of people are working for less than they can live on, exacerbated by a cost-of-living crisis. Meanwhile many of the companies they work for post huge profits. Responsible investors can help by urging the companies they invest in to pay nothing less than a real living wage and offer decent conditions for workers, accepting this may mean a short-term trade-off in financial returns.

Does responsible investing make financial sense?

We all lose in a world ravaged by the worst impacts of climate and ecosystem breakdown. Environmental risks include huge disruption to the global economy and food supplies, and increases in poverty, conflict and the numbers of people forced to flee their homes. Responsible investing is critical to preventing global economic and environmental catastrophe.

It’s estimated that poor health costs 15 per cent of global GDP. Poor health is often preventable. Having a stable job, decent working conditions and adequate pay are building blocks for a healthy life. When people don’t have what they need to heat their homes or buy healthy food, and are constantly worrying about making ends meet, it can lead to chronic, costly poor health. By prioritising public health, investors like pension funds can help to lay the foundations for people to enjoy healthier lives for longer, support companies to access a thriving labour market, and mitigate financial risks to their portfolios.

You can read more about ShareAction’s new standard for responsible investment here.

We’ll be working to drive support for this approach in a range of ways, including publishing guidance for investors on technical issues such as net zero targets. We’ll also continue to push for regulation in the UK and EU that can unlock the full potential of financial institutions to better serve their customers and society.