Responsible Investment - A glossary of terms

A short guide to help you understand the meaning of some of the more commonly used terms and expressions relating to Responsible Investment.
December 2019

Responsible investing is moving mainstream, with more and more people interested in whether their money is being managed in a sustainable way; they want to align their financial decisions with their values.

BMO Global Asset Management launched Europe’s first ethical fund for private investors in 1984 and our Responsible Investing team is one of the largest specialist teams in Europe.  We are incredibly proud of our heritage in responsible investing and the pioneering role we have played.

We are aware that many terms are being used interchangeably in this field, which can make it confusing for our clients and investors. We have therefore created this short guide to help you understand the meaning of some of the more commonly used terms and expressions. We hope you find it useful. Download the PDF here.

discharging responsibilities as investors and owners in a company through engagement and voting to influence the management on environmental, social and governance issues. 

an approach in which a company’s ESG performance is compared with that of its peers based on a sustainability rating. All companies with a rating above a defined threshold are considered as investable. They don’t exclude whole industries, but concentrate on the highest ESG scoring companies in a particular sector.

the processes according to which a company is directed and controlled. The corporate governance structure specifies the rights and responsibilities of the board, managers, shareholders and other stakeholders and lays down rules and procedures for decision-making.

this is the approach businesses take to describe the activities and commitments they are making to managing their ESG impacts.

selling shares or debt in full or in part based on a company’s behaviour. Investors who practice active ownership/ engagement often view divestment as a last resort if they feel their engagement has been ineffective.

encouraging companies to address ESG (Environmental, Social and Governance) issues, to reduce risk and support long-term performance.

a framework that breaks the broad concept of sustainability down into these 3 key issues.

the consideration of financially material ESG issues in the course of investment analysis and decision-making, with a view of gaining a more comprehensive understanding of risk and long-term opportunity.

refers to screened funds with the strictest investment criteria that avoid investing in any company that may have a poor record on environmental, human rights or other ethical grounds. An investment philosophy that tends to be guided by moral values, ethical codes or religious beliefs.

where companies, sectors or countries are excluded based on a defined set of criteria. Exclusion criteria can be related to the products and services a company provides (e.g. tobacco or weapons) or to their business practices (e.g. violation of human rights or corruption). Exclusions often requires “screening” see next column.

funds that invest with a clearly expressed intention to generate positive, measurable, social or environmental impact, alongside a financial return.

screening of investment against minimum standard of business practice based on national or international standards and norms.

an umbrella term that incorporates a range of practices and approaches in the consideration of key environmental, social and governance (ESG) risks, opportunities and impacts of the investments we make.

where companies or countries are screened to determine whether they should be included or excluded within a fund. These funds are also known as exclusion based or negatively screened funds. Positive screening refers to the inclusion of companies that make a positive contribution to addressing social and environmental challenges.

Socially responsible investing is the practice of investing money in companies and funds that have positive social impacts.

the 17 goals set by the United Nations in 2015 are a global framework for achieving a better and more sustainable future. They address the global challenges we face, including those related to poverty, inequality, climate, environmental degradation, prosperity and peace and justice. The UN is targeting completion of all 17 interconnecting goals by 2030.

this is a method of investing which proactively seeks companies to invest in that makes positive contributions in addressing social and environmental challenges.

investments made in businesses contributing positively to sustainable solutions either in a single theme e.g. water or in numerous themes.

exercising a privileged position as stewards of capital through a responsible approach to investment. This may include ESG integration and active ownership.

Related capability