New guidelines released today by the Institute of International Finance aim to clear up the language used to describe sustainable investment and measure industry progress.
The Washington D.C.-based IIF, whose membership includes many of the world’s largest banks and institutional investors, proposed separating basic categories from philanthropic investments and breaking them into three core groups: exclusion, inclusion and impactful.
The impactful category covers investments in companies and groups that “have a direct, positive, measurable impact on society and/or the environment” while generating strong returns, the IIF said in a report. Inclusion describes investments in organizations that consider sustainability and other social social impact issues, while exclusion considers those that avoid “investing in unsustainable corporates or countries.”
Lack of agreement on terms has hamstrung the growth of the sustainable investment space and made it difficult to pinpoint the size of the rapidly growing industry.
A survey by the insurance giant Aon found that a quarter of institutional investors said a lack of common language had interfered with responsible investing and that nearly half of these investors felt that standardizing language would boost accessibility.For example, the research arm of the Grafito Group identified 80 terms to describe sustainable investing.
- The Global Sustainable Investment Alliance estimated sustainable investment assets at $30.7 trillion but the UN’s Principles for Responsible Investment, a network of global investors, estimated ESG assets at more than $80 trillion.
- The IIF recommendations stem from groundwork by the IIF’s Sustainable Finance Working Group (SFWG), which was formed a year ago to develop sustainable finance practices. The 36-year-old IIF has 450 members in 70 countries
- A 2018 UBS survey found that almost three in four high net worth individuals found sustainable investment terminology confusing.