ESG-Related Funds incorporate ESG factors into their investment decision-making processes using one or more ESG strategies.
The following are some common ESG strategies used by investment funds:
| Name | Definition |
|---|---|
| Screening | The fund applies rules based on defined ESG-related criteria to determine whether an investment is permissible. There are different types of screening, including exclusionary or negative screening , best-in-class or positive screening , and norms-based screening , which are explained immediately below. |
| Exclusionary or negative screening | The fund applies rules based on undesirable ESG-related criteria to determine whether an investment is not permitted, including the exclusion of certain types of investments, sectors, or companies from a fund’s portfolio based on certain ESG-related criteria. |
| Best-in-class or positive screening | The fund applies rules based on desirable ESG-related criteria that determine whether an investment is permitted. In some cases, “best-in-class screening” and “positive screening” may have slightly different meanings.
|
| Norms-based screening | The fund applies rules based on compliance with widely recognized ESG-related standards or norms (such as international conventions) that determine whether an investment is or is not permitted. |
| ESG integration | The fund considers, on an ongoing basis, ESG-related factors within an investment analysis and decision-making process with the aim of improving risk-adjusted returns. |
| Thematic investing | The fund selects assets to access specified ESG-related trends, such as climate change and the shift to a more circular economy. |
| Impact investing | The fund invests with the intention of generating a positive, measurable social and/or environmental impact alongside a financial return. The aim is to contribute to, or catalyze, environmental or social improvements. |
| Stewardship (sometimes also referred to as active ownership) | The fund uses investor rights and influence (such as proxy voting and shareholder or issuer engagement , which are explained immediately below) to protect and enhance overall long-term value for clients and beneficiaries, including the common economic, social and environmental assets on which their interests depend. This includes influencing the activities or behaviour of underlying portfolio companies on ESG-related matters. |
| Proxy voting | The fund votes on management and/or shareholder resolutions in accordance with certain ESG-related considerations or aims. |
| Shareholder or issuer engagement | The fund interacts with the management of the company through meetings and/or written dialogue in accordance with certain ESG-related considerations or aims. The term shareholder engagement is generally used where the fund is a shareholder of the issuer, while the term issuer engagement may be used where the fund is not a shareholder of the issuer but is instead a holder of debt securities of the issuer. |
The above terms and definitions have been included for illustrative purposes only, and this Notice does not require or endorse the use of the above names and definitions for these ESG strategies, or the use of the ESG strategies themselves.