2About ACCA | About the academic teamUnderstanding responsible investment
About ACCA.
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Find out more at
Dannielle Cerbone
University of the Witwatersrand
Dannielle Cerbone is an accomplished professional
with a passion for excellence in academia and
accounting. He currently serves as an Associate
Professor at the University of the Witwatersrand, where
he shares his knowledge and expertise with the next
generation of accounting professionals. As a Chartered
Accountant registered with SAICA, Dannielle brings a
wealth of real-world experience to the classroom.
He completed his articles at PricewaterhouseCoopers,
where he also served as an Audit Manager.
Dannielle’s research interests revolve around value
creation, materiality determination, business model
development, and integrated thinking. His work has
been published in, iter alia, Meditari Accountancy
Research and the British Accounting Review.
His work is widely cited in the field.
Joseph Clay
University of Leeds
Joseph Clay is a recent graduate of Leeds
University Business School, having completed his
undergraduate dissertation on responsible investment.
Joseph was one of the top-performing scholars in
the Accounting and Finance Department at Leeds
University Business School.
Meet the academic team leading the academic research in this ACCA and
academia collaboration.
3Understanding responsible investment Academic team | Contents
Contents.
Executive summary 4
1. Introduction 5
2. The framework for responsible investment 6
. ESG integration 7
. Sustainability frameworks 9
Screening methods 11
. Investor proactivity 12
. Strategic purpose 13
. Selection of investment options 14
Regulatory requirements and standards 16
Outcomes 17
3. Conclusion 18
4. Appendix 20
Appendix A: Summary of resources used 20
Appendix B: Environmental metrics and KPI 24
References 25
5. Contributors 25
6. Bibliography 26
Dusan Ecim
University of the Witwatersrand
Dusan Ecim is an Associate Professor at the School
of Accountancy, University of the Witwatersrand.
He previously served in different capacities at Deloitte
South Africa and Deloitte Central Europe. Dusan is
the author of multiple full-length academic papers
and book chapters dealing with different aspects of
accounting, assurance, corporate reporting, integrated
thinking and sustainability. Dusan has also produced
technical and practitioner-focused reports for the
Chartered Institute of Management Accountants and
the South African Institute of Chartered Accountants.
Dusan is a Chartered Accountant and serves on the
Audit Development Committee of the Independent
Regulatory Board for Auditors.
Warren Maroun
University of Leeds & University of the Witwatersrand
Warren Maroun is a Professor of Accounting and
Auditing at the University of the Witwatersrand and
Leeds University Business School. He consults widely
on matters related to financial accounting, auditing
and integrated reporting. Warren serves as the editor
of Meditari Accountancy Research and is an
Associate Editor of Accounting, Auditing and
Accountability Journal, The British Accounting
Journal and Journal of Accounting and Public Policy.
He has published multiple academic and professional
publications dealing with various aspects of corporate
reporting and assurance.
Before joining academia, Warren served in different
capacities at PricewaterhouseCoopers. He has
served on different task forces, working groups and
committees for the Integrated Reporting Committee
of South Africa, the Independent Regulatory Board
for Auditors and the Chartered Governance Institute
of Southern Africa. Warren was a member of the
IAASB from 2022-2024. He earned his Masters in
Accountancy from the University of the Witwatersrand
and a PhD from Kings’ College London. He is a
member of the South African Institute of Chartered
Accountants and the Chartered Institute of
Management Accountants.
Executive
summary.
4Understanding responsible investment Executive summary
Environmental and social matters are
fundamentally interconnected with
an organisation’s financial success –
making sustainability considerations
central to effective capital allocation.
As climate change, biodiversity loss, and
social inequities intensify, the financial
implications of sustainability challenges
have become increasingly material for
both investors and investees.
This report synthesises the expanding body of literature
on responsible investment to establish a comprehensive
framework for integrating sustainability considerations
into investment decision-making. Drawing from academic
research, industry standards, and professional texts – we
identify eight core components of responsible investment
for investors to focus on:
■ ESG integration: Systematically incorporate material
environmental, social and governance (ESG) factors into
investment analysis and decision-making to improve
risk-adjusted returns.
■ Sustainability frameworks: Leverage established
frameworks to identify, measure and report on material
sustainability issues.
■ Screening methods: Use avoidance and adaptive
screening approaches to evaluate and assess
environmental and social risks and opportunities.
■ Investor proactivity: Exercise active ownership
using stewardship actions, stakeholder engagement,
and collaborative initiatives to influence positive
sustainability outcomes.
■ Strategic purpose: Define clear sustainability
objectives and develop policies to formalise and ensure
consistent application of the investor’s sustainability
strategy.
■ Selection of investment options: Match appropriate
financial instruments with specific sustainability goals
and investment needs, ensuring alignment with the
responsible investment strategy.
■ Regulatory compliance and standards: Maintain
awareness of evolving sustainability regulations,
disclosure requirements, industry best practices, and
existing sustainability standards to ensure compliance
and strategic advantage.
■ Outcomes: Develop, monitor and report
comprehensive metrics that capture both financial
returns and broader environmental and social
value creation.
Together, these interconnected components form an
integrated thinking model for responsible investment.
This model builds on ACCA’s previous research on
sustainability reporting and connectivity of information1.
At the model’s core is the approach to integrating ESG
issues into decision-making processes and policies
developed to formalise the investor’s sustainability
strategy. Regulatory requirements and industry
frameworks serve as calibration checks to ensure
completeness and conformance. Operationalising the
strategy requires rigorous screening and meaningful
investor proactivity, while comprehensive reporting
provides accountability to stakeholders.
This framework is not intended to relegate financial
returns to a secondary consideration – but rather to
ensure that the full spectrum of risks and opportunities is
systematically incorporated into investment analysis and
capital allocation.
Given the dynamic nature of responsible investment, the
proposed framework should be viewed as a foundation as
opposed to a static blueprint. The responsible investment
space continues to evolve rapidly in response to:
■ changing regulatory landscapes
■ innovations in financial instruments
■ advances in scientific understanding
■ growing stakeholder expectations
■ emerging technologies.
1 ACCA’s work on sustainability reporting and making connections is housed
within Sustainability reporting hub: creating and using decision-useful
information | ACCA Global
5Understanding responsible investment Introduction
2 While this report is aimed at institutional and retail investors, it will also be
applicable more generally. For example, investees, their governing bodies
and other stakeholders may also find the report’s assessment of responsible
investment useful.
1. Introduction
2
.
There is no generally accepted
definition of ‘responsible investment’.
There are practical, technical and legal
challenges still to be resolved before a
global consensus can be achieved. In
the interim, this report takes stock of
the growing body of literature on the
relevance of sustainability for the
broader investment community.
The core features or characteristics
of ‘responsible investment’ are
identified by synthesising
mainstream sources and the
latest academic research.
A logical starting point is the term ‘sustainable
development’. This was formally defined in 1987 by the
World Commission on Environment and Development
(WCED) as progress that ‘meets the needs of the present
without compromising the ability of future generations to
meet their own needs’ [1]. This foundational concept has
become central to global discussions about economic
development, environmental protection, and social equity.
Nevertheless, the environment continues to be damaged
at an accelerated rate [2-4]. Alongside warnings from
the scientific community, leading institutions such as the
International Monetary Fund (IMF) [5], World Bank [6]
and Financial Stability Board (FSB) [7] have highlighted
the existential risks posed by unchecked environmental
degradation.
Against this backdrop, responsible investment has
emerged as a means of aligning economic activity with
sustainability imperatives. This reflects a fundamental
shift in how decisions are made by investors, asset
managers, and asset owners in the private and public
sectors – with each required to incorporate sustainability-
related considerations into their strategic and operational
processes [8]. Consequently, the integration of
sustainability into investment decision-making has evolved
from a niche concern to a mainstream consideration,
driven by both recognition of systemic risks and
growing stakeholder expectations [8-11].
At international policy level, the journey began with the
Millennium Development Goals (MDGs) set in 2000,
which provided the first global baseline on development
priorities. Recognising limitations – including the need
for a more comprehensive approach to tackle social
and environmental challenges – the United Nations (UN)
transitioned to the Sustainable Development Goals (SDGs)
in 2015 [12]3. These were intended to guide public policy
and national investment priorities, but have increasingly
influenced organisations’ strategies and reporting as well
as investors’ capital allocations4.
At the institutional level, the United Nations Principles
for Responsible Investment (UNPRI)5, launched in 2006,
presents six principles specifically tailored for financial
institutions. These have become widely adopted – with
institutional investors managing over US$100 trillion in
assets committing to incorporating ESG factors into their
investment analysis and ownership practices.
Multiple guidelines have emerged to inform the
accounting for and reporting on extra-financial issues6.
The Equator Principles (EPs)7 provide further guidance to
assist financial institutions with incorporating ESG issues
more effectively into their investment decision-making.
Collectively, the EPs and various reporting frameworks
provide the basis for describing the policies, processes
and practices that constitute ‘responsible investment’.
3 For a summary of the SDGs and a brief description of each goal refer to
4 The prior research notes that the measures and targets employed by organisations and providers of financial capital can vary. Even when this is not the case, each of the SDG
goals can be interpreted and operationalised differently. Understanding how the SDGs macro-ambitions effect organisations’ and investors’ strategies is beyond the scope of
the current report.
5 A description of the UNPRI principles is found here
6 A description of the UNPRI principles is found here
7. The Equator Principles were established in 2003 and have evolved over time to address new environmental and societal risks. The latest iteration was in 2020
with ‘EP4’ and this framework is widely respected within financial institutions. For more information see
Reconciling and consolidating these sources, however, is
no easy task. The remainder of this report outlines eight
components that characterise responsible investment.
The result is a comprehensive, yet relatively concise,
reference that will be useful for investment practitioners,
asset owners, and regulators who must navigate an
increasingly complex field.
6Understanding responsible investment 2. The framework for responsible investment
The analysis of articles and
professional texts – including
frameworks, principles and standards
related to sustainable finance –
identifies eight core components
of responsible investment.
These components were identified
using a type of cluster analysis.
Academic papers were grouped
based on their keywords8, cross
references and citations.
This limited the possibility of bias when aggregating
articles by theme/content. After the first grouping
had been completed the authors complemented
the analysis by incorporating non-academic sources
including, for example, technical reports, professional
standards, and codes of best practice. This involved
the application of judgement but was guided by the
groupings generated using the cluster analysis to
reduce subjectivity. (Further details on this approach
can be found in Appendix A.)
These components have been ranked by
considering the frequency of mentions in the
literature, citation counts of the respective sources,
and the chronological development of the field.
The ranking reflects both the historical importance of,
and the current emphasis placed on, different aspects
of responsible investment by researchers, practitioners
and policymakers9.
2. The framework for
responsible investment.
8 The keywords are determined by the authors of each article.
9 The eight components are broadly consistent with the UN PRI but do not correspond exactly to each of the PRI’s principles.
This is because the derivation of the eight components is based on a broad range of sources of which the UN PRI is an example.
Figure 1:
The components of responsible investment
The eight components described in this report form part of
a comprehensive framework for responsible investments10.
They are interconnected and, when applied holistically,
enable investors to integrate sustainability considerations
into their core decision-making. Given the dynamic nature
of responsible investment, the eight components should
not be interpreted as exhaustive. Investment professionals
should view this framework as a dynamic foundation
rather than a static blueprint – one that requires ongoing
engagement with emerging research, standards
and best practices. Before dealing with the
interconnections between the components,
each is considered individually below.
7Understanding responsible investment 2. The framework for responsible investment
. ESG integration
‘ESG integration’ is the ‘ongoing consideration of ESG
factors within an investment analysis and decision-making
process with the aim to improve risk-adjusted returns’ [13].
The first component is referred to extensively by multiple
sources, including the UN PRI, and can be considered
the foundation of responsible investment. It requires
a systematic incorporation of sustainability-related
considerations into each material part of investment
analysis and capital allocation [14].
How the ESG dimensions are addressed by the investor
are explained as part of its sustainability reporting. This
complements details provided by the investee on how
financial and extra-financial issues affect its operations
(Section ).
The nature and extent of reporting depend on context,
materiality and the application of professional judgement.
Ultimately, what is reported is a product of integrated
thinking – how environmental, social and economic
factors are managed concurrently to generate reliable
and responsible returns for investees [9, 15]. At the of this
is the investor’s ability to identify extra-financial issues,
related dependencies, the emerging risks, and
associated financial outcomes [7].
Environmental risk assessment
Environmental risks fall into two primary categories:
■ Physical risks stem from environmental events such
as floods, droughts and extreme weather conditions
that can directly damage infrastructure and disrupt
operations.
■ Transition risks arise from the shift toward a low-carbon
economy, including policy changes, technological
innovations, and market preferences that can affect
asset valuations [7, 8, 16].
Social risk assessment
Social risks stem from public perception and societal
trends, both of which can affect financial performance.
These include issues such as cybersecurity breaches,
labour disputes, and human rights concerns.
For example, Facebook’s sharing of personal data from
87 million users with Cambridge Analytica in 2018 led to a
£ drop in market capitalisation [18]. Similarly, a 2014
strike in South Africa’s platinum mining sector, involving
70,000 workers, is estimated to have reduced the
country’s real GDP growth by at least % [19].
Governance risk assessment
Strong governance structures are essential for
managing environmental and social risks effectively.
Governance factors include board composition, executive
compensation, business ethics, transparency, and
regulatory compliance (see Appendix B). Poor governance
can lead to inadequate risk management, conflicts of
interest, and reduced accountability – potentially resulting
in significant financial losses and reputational damage [20].
10 The report is prepared from the perspective of an investor at the time when making an initial investment. Key principles can, however, be adapted to deal with the assessment/
reassessment of existing investments. A detailed discussion on the difference between appraisals made at initial investment or subsequently is beyond the scope of this report.
> ESG integration.
> Sustainability frameworks.
> Screening methods.
> Investor proactivity.
> Strategic purpose.
> Selection of investment options.
> Regulatory frameworks.
> Outcomes.
Effectively integrating extra-financial issues
into investment decision-making requires
robust methodologies and processes.
Understanding responsible investment
Implementing ESG integration
Determining which social and environmental issues
are relevant in the context of an investment strategy
is challenging – although some guidance has been
developed. Investors need to consider the full range of
extra-financial factors before ranking them by materiality –
using a both of qualitative and quantitative indicators,
such as:
■ Direct and indirect dependencies: Which social
environmental resources/capitals are the investor
(direct) and investee (indirect) dependent on for
the sound functioning of their business models
and realisation of their strategic goals?
■ Stakeholder expectations: Who are the primary
stakeholders, and which social and environmental
issues do they reasonably expect to be factored
into investment decision- making processes?
■ Regulatory requirements: Do laws, industry
regulations, or generally accepted practices create
legal or constructive obligations/expectations to
integrate specific extra-financial issues into the
investor’s operations, strategies or risk assessments?
■ Timeframes: Over what period do social or
environmental risk/dependencies materialise?
■ Expected impacts: What is the magnitude of the
extra-financial impact on the amount and certainty
of future cashflows – and how are these cashflows
altered by the associated timeframe of the respective
extra-financial issue?
[7, 14, 21]
Effectively integrating extra-financial issues into investment
decision-making requires robust methodologies and
processes. Several key principles from the technical
[22] and academic literature can be used to guide ESG
integration. For example:
■ Extreme Value Theory (EVT) and other scientific
models can be used to forecast the effect of
extraordinary environmental events and factor these
into expected cash flows.
■ Discount rates can be adjusted to reflect risk levels
associated with future cash flows due to underlying
ESG issues, using either quantitative techniques or
industry-aligned heuristics.
■ Similarly, the beta of stocks can be modified based
on quantified or perceived levels of ESG risks.
[23]
A detailed review of the practical application of each
of these principles is beyond the scope of this report.
The objective here is to develop a comprehensive
framework to ensure ESG factors are consistently and
comprehensively considered within risk assessment and
management processes. This supports well-reasoned
conclusions regarding the impact of ESG factors on
financial stability and investment performance.
2. The framework for responsible investment 8
9Understanding responsible investment 2. The framework for responsible investment
. Sustainability frameworks
Sustainability frameworks provide structured approaches
for addressing ESG challenges using standardised
principles, metrics and reporting guidelines. The
development of these frameworks represents a significant
evolution in how organisations conceptualise and
measure sustainability performance [24, 25]. For example:
■ United Nations Principles for Responsible Investment
(UNPRI): Launched in 2006, the UNPRI offers six
principles specifically tailored for financial institutions
[14].
■ Task Force on Climate-related Financial Disclosures
(TCFD): Established by the FSB, the TCFD provides
recommendations for climate-related financial
disclosure – helping organisations assess and report
on climate-related risks and opportunities [26].
■ Task Force on Nature-related Financial Disclosures
(TNFD): Building on the TCFD model, the TNFD
focuses on nature-related risks and opportunities –
providing a framework for organisations to assess and
disclose their dependencies and impacts on nature [7].
■ International Sustainability Standards Board
(ISSB): Established by the IFRS Foundation, the ISSB
aims to develop a comprehensive global baseline
of sustainability disclosure standards – promoting
consistency and comparability in sustainability
reporting.
■ Global Reporting Initiative (GRI): Provides
standardised sustainability reporting guidelines for
organisations that cover a range of sustainability topics
– with complementary industry and sector guidelines.
Collectively, these frameworks/standards provide a rich
ecosystem of metrics, objectives and principles that
responsible investors will find useful for two reasons.
Firstly, the frameworks set parameters for how investees
report. This improves data collection and processing by
enabling comparability and consistency in what and how
investees in the same sectors disclose financial and extra-
financial information [27, 28].
Secondly, the frameworks/standards encourage the
responsible investor to assess their own credentials and
guide the integration of ESG issues into its decision-
making, as discussed in Section . For this purpose,
these frameworks/standards should not be treated
as a disclosure checklist exercise. Rather, they should
serve as a starting point for a principles-based approach
to incorporating all material ESG considerations into
investment appraisals and capital allocations.
Aligning investment strategies with sustainability
frameworks
Responsible investment requires explicit consideration
of how investment activities contribute to, or detract
from, sustainability objectives. This alignment can take
several forms:
■ Framework selection: Identifying which sustainability
frameworks are most relevant to specific investment
strategies, sectors, or stakeholder expectations.
■ Target setting: Establishing specific sustainability
targets aligned with selected frameworks.
■ Impact measurement: Developing metrics to quantify
investment impacts using framework-defined indicators.
■ Reporting: Communicating framework-aligned
performance to stakeholders.
[29]
Many institutional investors map their portfolios against
multiple sustainability frameworks – using well-known
indices or internally-generated scores. The objective
is to identify areas where investments make positive
contributions, and where improvements are needed
[8, 30]. This approach provides a practical means for
investors to demonstrate their commitment to sustainable
development, identify opportunities aligned with global
sustainability priorities, and highlight the relationship
between financial returns and extra-financial objectives.
10Understanding responsible investment 2. The framework for responsible investment
Responsible investors should recognise the strategic
value of investees that prioritise the incorporation of
principles from frameworks/standards into their core
operations, rather than treating disclosure as a compliance
exercise by the investor or the investee [31]. Mere
compliance does not automatically lead to improved ESG
performance. More important is integrating extra-financial
indicators into investment appraisal and other decisions
[30], as discussed in Section . Indicators that ESG
issues are being addressed substantively rather than
symbolically are:
■ Risk management: Recognising how failure to address
sustainability issues – as articulated by the applicable
frameworks – can increase exposure to risk or cause
missed opportunities for both the investee and the
investor. A dual perspective is needed, including both:
1. An ‘inside-out’ approach – where the investor
must be satisfied the investee has a comprehensive
approach to managing sustainability-related issues as
part of its business model.
2. An ‘outside-in’ approach – that addresses how
the investor’s systems, processes and methodologies
integrate ESG issues into their decision-making.
■ Engagement: Active collaboration between the
investor and investees, researchers and NGOs to better
understand sustainability related issues and improve
ESG performance. (This is discussed in more detail
under ‘Investor proactivity’ below.)
■ Materiality assessment: Effective risk management
and engagement enable the investee and/or investor
to identify the most relevant sustainability issues. Issues
prioritised by a specific investor may not be identical
to those highlighted in the investee’s official reports.
This is because the applicable framework/standard
may require broader reporting by the investee on
sustainability-related matters to address the information
needs of multiple stakeholders.
■ Long-term orientation: The investee and/or investor
must address operational and strategic issues over
the short-, medium- and long-term.
■ Innovation focus: The investee and/or investor
employs the frameworks to explain how material
risks are mitigated and how it plans to capitalise
on significant opportunities.
■ Continuous improvement: There is evidence of
the investee and/or investor regularly reviewing
and refining framework implementation – based on
emerging best practices and evolving sustainability
challenges.
■ Balance and completeness: The investee’s and/
or investor’s formal reports detail both positive and
negative outcomes. The content of those reports is
consistent with the investor’s understanding of the
investee and the broader industry.
■ Simplicity: The sustainability report, or equivalent,
explains the investee’s and/or investor’s financial and
extra financial performance clearly and concisely.
Immaterial details should be excluded to enable
a balanced assessment by management and the
governing body.
■ Sustainability assurance: The investee and/or
investor implements robust verification processes to
ensure the accuracy, completeness and reliability of its
sustainability reporting. This includes internal controls,
third-party verification, and transparent methodologies
that enhance stakeholder confidence in sustainability
reporting.
Effective assurance helps combat greenwashing,
reduces information asymmetry, and enhances the
value relevance of reporting. Consequently, leading
investors recognise that credible sustainability
performance will eventually require the same level of
rigour and verification as financial reporting. [7, 13, 25,
28, 32-38]
Using sustainability frameworks/standards to inform
responsible investment is not without its challenges.
Most notable is the exponential increase in the number
and complexity of reporting schematics – marked by
inconsistent terminology, excessive use of metrics, and
conflicting priorities. The administrative and compliance
costs raise concerns about a possible disconnect
between how sustainability is managed and reported on
by investees. Even when the risk of green washing is low,
sustainability reporting is seldom consistent over time and
among entities in the same industry.
Efforts to address these challenges include the
development of framework mapping tools, which
identify overlaps and complementarities among different
sustainability frameworks and initiatives to align reporting
requirements. The establishment of the ISSB represents
a significant step toward framework consolidation –
aiming to develop a comprehensive global baseline for
sustainability disclosure [39].
In some cases, pursuing an environmental or social
objective directly contributes to higher financial returns.
For example, through improved operational efficiencies,
strategic positioning by the investee, better diversification
of investor’s portfolio, or access to preferential tax
treatments. In other cases, the investor may accept
a lower financial return (especially in the short-run)
in exchange for mitigating negative social or
environmental impacts.
Care must, however, be taken to ensure that any index or
score used provides a valid and consistent measure of
underlying sustainability performance – not only capturing
the extent to which an investee is reporting/commenting
on various ESG indicators [9].
‘ In some cases, pursuing an
environmental or social objective
directly contributes to higher
financial returns.’
‘ Using sustainability frameworks/
standards to inform responsible
investment is not without its
challenges.’
112. The framework for responsible investment
. Screening methods
Screening is defined as ‘applying rules based on
defined criteria that determine whether an investment
is permissible’ [13]. Responsible investors should
conduct ‘an adequate, accurate and objective
evaluation and presentation of the environmental
and social risks and impacts’ [31] before committing
funds. This requires comprehensive understanding of
impact pathways [40] and doing so is a technical and
time-consuming activity.
The LEAP Framework11 has been developed by
the FSB to help investors and asset owners with
investment screening [21]. Although originally intended
for nature-related issues, LEAP can be adapted to
address ESG considerations more broadly. It can
also be combined with recent academic work dealing
with the accounting for, and reporting on, different
environmental risks, eg habitat destruction and loss
of species [21].
How screening would be operationalised is context-
specific. Consequently, the remainder of this section
addresses only with broader aspects – including
the differences between avoidance and adaptive
screening, and how these can be integrated into
investment decision-making.
Avoidance vs. adaptive screening
There are two primary approaches to screening:
avoidance and adaptive.
Avoidance screening follows an ‘outside-in’
methodology – excluding investments that do not
meet predetermined ESG thresholds. This approach
is straightforward and can align with specific ethical
guidelines, but may limit investment opportunities [41].
Adaptive screening employs an ‘inside-out’ approach
– considering all possible investments unless negative
externalities cannot be mitigated. This approach can
take several forms:
[42, 43]
Responsible investors
should conduct an
adequate, accurate and
objective evaluation
and presentation of the
environmental and social
risks and impacts.
Understanding responsible investment
Transformative change: Identifying stocks
where transformative change can be
enacted post-investment.
1.
Marginal change: Investing in companies
where negative impacts can be mitigated
by making incremental modifications to
the investee’s operations, processes or
systems over time.
2.
Offsetting: Balancing investments with
negative externalities against those with
positive impacts.
3.
11 For further details on the applying LEAP refer to:
publication/additional-guidance-on-assessment-of-nature-related-issues-
the-leap-approach/
12Understanding responsible investment 2. The framework for responsible investment
While avoidance screening sits highest on the mitigation
hierarchy, adaptive screening allows for a wider range
of investment opportunities. Investors should follow the
mitigation hierarchy while using professional judgment to
determine the most appropriate approach based on their
investment objectives, values and constraints.
While this report does not advocate for one type of
screening over another, the technical and academic
literature agrees that screening should be integrated
throughout the investment process [44].
. Investor proactivity
Active ownership is a cornerstone of responsible
investment, surpassing passive investment to actively
influence corporate behaviour [45]. The concept
encompasses stewardship, engagement and the exercise
of shareholder rights to promote sustainable business
practices.
Stewardship
Stewardship refers to ‘the use of investor rights and
influence 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’ [13].
Active shareholder involvement can lead to
more sustainable outcomes [46], and improving
the well-being of all company stakeholders [47].
Key stewardship activities include:
■ Proxy voting: Exercising voting rights on
shareholder resolutions.
■ Board engagement: Communicating with
board members on strategic issues.
■ Shareholder resolutions: Filing proposals to
address specific ESG concerns. [48]
The nature and extent of the investor’s stewardship
activities should be guided by an overarching materiality
assessment. This will take into consideration factors such
as, the investor’s financial exposure, the environmental
and social risks at the investee level, the strength of the
investee’s governance systems, and the resources at the
investor’s disposal [49].
Stakeholder engagement
The EPs advocate for effective stakeholder engagement
[31], recognising that investment impacts extend beyond
the value chain of the investee to broader social networks.
Neglecting stakeholder networks can have significant
financial consequences, as negative sentiment can lead
to poor press coverage and increased regulatory scrutiny
[50, 51].
Examples of how a responsible investor could mitigate
risks resulting from the stakeholder network include:
■ Engaging with indigenous groups, local communities,
and affected stakeholders transparently and
respectfully [52].
■ Employing grievance mechanisms to promote positive
stakeholder relations and accountability
[20, 31].
■ Developing metrics and monitoring systems in
collaboration with stakeholders to build confidence
and maintain accountability [52].
As with stewardship activities, stakeholder engagement
should be appropriately scaled. The responsible
investor is not relieved of their duty to generate a
reasonable financial return; they must take reasonable
steps to achieve its business objectives (see ‘Financial
performance’ below). Consequently, the responsible
investor cannot be expected to operate on behalf of
every stakeholder, especially in cases where expectations
conflict. The investor should, however, develop policies to
guide how stakeholders’ needs are identified and ranked
to manage trade-offs appropriately [53].
Collaborative initiatives
Collaboration among shareholders can transform impact
pathways more effectively. Membership in organisations
like UNPRI and adherence to the EPs facilitates
connections with like-minded institutions.
Strategic partnerships can accelerate sustainability
initiatives by enabling investors to pool resources, share
knowledge, and exert greater influence than they could
individually [54, 55]. This collaborative approach is
particularly valuable when addressing systemic
issues that require coordinated action [38].
13Understanding responsible investment 2. The framework for responsible investment
. Strategic purpose
Responsible investing should not be misunderstood as
forsaking profit in favour of pursuing lofty environmental
or social objectives. On the contrary, the guidance
provided by, for example, the UN PRI and the TNFD offers
practical means of managing the interconnections among
environmental, economic and social objectives at the
strategic level.
One approach is to leverage social and environmental
risks and opportunities to generate superior financial
returns. An alternative is to explore investments with a
favourable social and/or environmental impacts. These
may offer a lower financial return, especially in the
short term, but provide strategic and other non-financial
benefits. While not every investor will be interested in
allocating funds to the respective projects, some may be
prepared to accept a lower financial return in exchange
for the longer-term benefits associated with improved
environmental and social outcomes [56].
‘ Responsible investing should not
be misunderstood as forsaking
profit in favour of pursuing
lofty environmental or
social objectives.’
Each approach to responsible investment will have
advantages and disadvantages. The existing literature
does not advocate for one strategic framing of
investments over another – but agrees that appropriate
policies should be developed to guide how the investor
allocates funds. Key considerations include:
■ Setting impact objectives: Defining the specific social
or environmental outcomes sought.
■ Selecting metrics: Identifying appropriate indicators to
measure progress.
■ Collecting data: Gathering information on impact
performance.
■ Analysing results: Assessing outcomes against
objectives.
■ Reporting findings: Communicating impact
performance to stakeholders. [57]
Identifying changes in behaviour and/or outcomes
being targeted.
What?
Determining which stakeholders are affected
by changes
Who?
Measuring the scale and extent of the impact
How much?
Articulating the financial and non-financial role in
achieving the impact
Contribution
The analysis of results and reporting of findings
are discussed in Section to . How data is
collected and processed is an integral part of investor
proactivity (Section ) and financial performance
considerations (Section ). Frameworks such as the
Impact Management Project (IMP) provide standardised
approaches for assessing impact across five dimensions:
Evaluating the likelihood of divergence between
expected and actual results, and developing
mitigation strategies. [58-62]
Risk
14Understanding responsible investment 2. The framework for responsible investment
. Selection of investment options
Section is concerned with developing an overarching
strategy for integrating ESG issues into investment
decision-making. An additional, but related, ‘node’ of
research examines the selection of specific types of
investments to implement the strategic direction set
by the investor’s governing body.
There are two interrelated considerations; the
classification of investments as environmentally or socially
responsible, and how the different types of responsible
investment are selected.
Common examples of investment classifications include
green bonds, social bonds and sustainability bonds,
sustainability-linked loans and bonds, transition finance
and nature-based finance. The defining feature of each
is that it is used to channel capital towards sustainability-
related activities [63, 64].
Table 1:
Classification examples
CLASSIFICATION DESCRIPTION
Green bonds Green bonds are fixed-income securities whose proceeds are exclusively applied to new and existing
projects with environmental benefits. The Green Bond Principles (GBPs) provide voluntary guidelines
for issuing green bonds, covering four key components:
(1) the use of proceeds
(2) the process to be followed for project evaluation and selection
(3) how proceeds are managed
(4) the nature, timing and extent of the information to be reported.
The green bond market has grown substantially since its inception – reflecting increasing demand for
investments that support climate and other environmental objectives [60, 65].
Social bonds and
sustainability bonds
Social bonds are fixed-income securities whose proceeds fund projects with positive social outcomes, such
as affordable housing, food security, or access to essential services. Sustainability bonds combine elements
of both green and social bonds – funding projects with both environmental and social benefits [66].
Sustainability-linked
loans and bonds
Sustainability-linked loans and bonds connect the financial terms of the instrument to the borrower’s
achievement of sustainability targets. Unlike green bonds, which focus on the use of proceeds linked
to specific environmental objectives, sustainability-linked instruments focus on the overall sustainability
performance of the issuer. In other words, social and governance factors are considered as well as
environmental ones [67]. The key features include:
> Selection of material KPIs
> Calibration of sustainability performance targets
> Loan/bond characteristics that vary based on target achievement
> Reporting on performance
> Verification of performance against targets.
This structure creates financial incentives for improved sustainability performance. It is intended to
align financial returns with the achievement of environmental and social objectives [68].
Transition finance Transition finance supports organisations in carbon-intensive sectors to shift toward lower-carbon
business models. This emerging area recognises that achieving climate goals requires not only investing
in already-green activities, but also supporting the transition of carbon-intensive industries [69].
Nature-based finance Nature-based finance focuses on investments that support the conservation, restoration and sustainable
management of natural ecosystems. This includes biodiversity offsets, payments for ecosystem services,
and conservation finance mechanisms that recognise the economic value of natural capital [40].
15Understanding responsible investment 2. The framework for responsible investment
The instruments discussed above are examples of the
types of investments that can be funded to achieve the
investor’s strategic aims. Generally accepted criteria
that must be satisfied for an investment to be classified
as ‘green’, ‘social’ or ‘sustainability-linked’ are yet to be
finalised [14].
In the interim, while it can be tempting to use bright lines
to define ‘responsible investment’, this should be avoided.
Instead, responsible investment is characterised by
developing and implementing policies to ensure that the
selection of specific investments aligns with the investor’s
strategic position on integrating social and environmental
concerns into decision-making processes, as discussed in
Sections and [7, 14, 21].
‘ Responsible investment is
characterised by developing
and implementing policies to
ensure that the selection of
specific investments aligns
with the investor’s strategic
position on integrating social
and environmental concerns
into decision-making processes.’
Key considerations to guide investment houses and their
governing bodies include:
■ Defining sustainability-related investments: A clear
definition should be developed that differentiates
between various types/classes of instruments. Any
internally developed definitions should, to a practical
extent, be consistent with recommended best practices.
■ Identifying suitable indicators: Relevant financial and
non-financial indicators should be selected to evaluate
available investments and classify them in accordance
with internal definitions/classifications of sustainability-
related definitions.
■ Adapting frameworks: In the absence of detailed
guidance to link specific indicators with certain types
of responsible investment, the support provided by
frameworks such as the TNFD and TCFD can be
adapted accordingly. For example, an investment’s
social, economic and environmental impact pathways
can be identified and assessed to assist with
investment classification. In practical terms, this could
be carried out as part of the investor’s screening
process (Section ).
■ Engaging specialists and stakeholders: Classifications
can be tested using detailed reviews by subject matter
experts and the investor’s key stakeholders. The
investor’s governing body should assume ultimate
responsibility for how investments are classified.
■ Developing allocation policies: Policies should be
developed to guide the allocation of funds to the
different types/classifications of investments. These
should align with the investor’s strategic purpose/
aim (Section ), and cover issues such as how ESG
concerns are integrated into risk assessments, the
trade-off between financial return and extra-financial
impact, and total exposure to types of investments.
■ Performance reviews: Senior management and those
charged with governance should regularly review both
the financial and extra-financial performance measures
for each material class of sustainability-related
investment. ACCA’s guide on green finance skills
is a useful resource to consider [70].
■ Internal oversight: Responsibilities of the internal audit
function and charter of the audit and risk committee
should be expanded to incorporate monitoring of the
investment policy and review of material classes of
sustainability-related investments.
■ Reporting consistency: Investment selection and
management of investment options should be
aligned with how the related information is
disclosed to stakeholders in annual, sustainability
or integrated reports.
[7, 13, 63, 64, 70, 71]
Regulatory frameworks vary by region – with some
jurisdictions implementing mandatory sustainability
disclosure requirements while others rely on
voluntary approaches.
16Understanding responsible investment 2. The framework for responsible investment
. Regulatory requirements and standards
The regulatory landscape for responsible investment
has developed significantly in recent years – with
increasing policy interventions aimed at promoting
sustainable finance and improving ESG disclosure.
This development reflects growing recognition of the
financial materiality of sustainability factors and the
need for standardised approaches to sustainability-
related financial information.
Regulatory frameworks vary by region – with some
jurisdictions implementing mandatory sustainability
disclosure requirements while others rely on voluntary
approaches. Commonly used frameworks/standards
are discussed in Section . These should be
evaluated in conjunction with the latest regional
developments. For example:
■ The EU Sustainable Finance Action Plan –
including the EU Taxonomy, Sustainable Finance
Disclosure Regulation (SFDR) and Corporate
Sustainability Reporting Directive (CSRD) – provide
a comprehensive regulatory framework for
sustainability reporting and sustainable finance.
■ United Kingdom: The UK has implemented
mandatory TCFD-aligned disclosure requirements
for certain organisations and developed a Green
Finance Strategy to align financial flows with climate
and environmental goals.
■ United States: While federal regulation has
been more limited, the Securities and Exchange
Commission (SEC) in the USA has, at the time
of writing, proposed rules on climate-related
disclosure. In parallel, several state-level initiatives
have advanced sustainable finance objectives.
These frameworks facilitate practical implementation
of sustainability principles at the operational level
of investment decision-making. Despite progress,
challenges remain in the regulatory landscape
for responsible investment [72]. As discussed in
Section , these include:
■ fragmentation of reporting requirements
■ implementation challenges
■ A rapidly evolving regulatory landscape that
requires continuous adaptation by market
participants.
Investors must remain alert to the continuously
evolving regulatory context, including geopolitical
and geoeconomic tensions. Opportunities for smaller
investors to collaborate in the interests of regulatory
compliance and the benefits of economies of scale
should be explored.
17Understanding responsible investment 2. The framework for responsible investment
. Outcomes
Research suggests that responsible investment
approaches can deliver competitive returns while
potentially reducing certain types of risk [48]. These
include:
■ Regulatory risks: Anticipating regulatory changes
related to environmental and social concerns.
■ Reputational risks: Identifying potential controversies
that could damage brand value.
■ Operational risks: Recognising vulnerabilities in
operations, supply chains, and resource dependencies.
■ Litigation risks: Assessing exposure to legal
challenges related to ESG issues.
■ Systemic risks: Understanding exposure to broader
environmental and social trends.
Effective ESG risk management can reduce volatility
and bolster financial returns by allowing the responsible
investor to more accurately predict the amount and timing
of an investee’s future cashflows. Beyond risk mitigation,
integrating ESG into investment decision-making can lead
to long-term value creation by enabling:
■ Innovation: Companies addressing sustainability
challenges often develop innovative products and
services.
■ Operational efficiency: Resource efficiency initiatives
can reduce costs.
■ Talent attraction and retention: Strong ESG
performance can enhance ability to attract and retain
skilled employees.
■ Customer loyalty: Alignment with consumer values
can strengthen brand loyalty.
■ Access to capital: ESG leaders may benefit from
lower cost of capital. [13, 26, 43].
To realise these benefits, investors must have access to
a broad range of data [73]. Given the nature of different
types of sustainability reporting, this includes both
qualitative and quantitative information – comprising
monetary and non-monetary measures [74]. The data
applicable for each investor will vary according to
circumstances – for example, the type of underlying
investments, the frameworks/standards applied by the
investee, and the prevailing regulatory regime (see also
Section ).
The responsible investor will have broad policies in place
to guide the nature and scope of the data required, and
how this data is organised to enable effective decision-
making. The investor will require appropriate internal
controls over the resulting ‘chart of accounts’. This is to
ensure that internal decision-making and reporting by
the investor to its stakeholders is based on accurate,
complete and reliable data [75, 76]. The most material data
should be externally assured as an additional safeguard
[31].
A comprehensive and reliable accounting infrastructure
will allow the investor to develop appropriate performance
metrics – capturing both traditional financial returns and
broader value creation.
Key considerations include:
■ Establishing clear expectations for investee
companies regarding sustainability performance.
■ Measuring progress against established objectives
so that investees can be held accountable for financial
and extra-financial outcomes.
■ Using a combination of short- and long-term
performance metrics aligned with sustainability
objectives.
■ Complementing financial performance metrics with
indicators of environmental and social value change.
■ Ensuring alignment between executive compensation
structures and the investor’s sustainability outcomes.
[13, 34, 77]
Responsible investment does not require sacrificing
financial returns for achieving social or environmental
objectives (Section ). Investors, however, should be
aware of potential trade-offs and constraints. For example:
■ Screening approaches may limit the investable universe
(Section ).
■ ESG-linked portfolios may deviate from conventional
benchmarks.
■ ESG strategies could underperform alternatives,
especially over the short-term [41, 78].
18Understanding responsible investment 3. Conclusion
The eight components described in
this report are part of a comprehensive
framework for responsible investment.
Each component was identified and
defined based on the focal points of,
and interconnections among, the
latest academic research and
professional literature.
While the components are presented as distinct, they
are interconnected. A responsible investor considers
them holistically as part of a process of incorporating
material sustainability considerations into their core
decision-making.
How this might be done is illustrated by Figure 2.
3. Conclusion.
Figure 2:
Application of integrated thinking to responsible investment
Accounting
and Reporting
■ Take stock
of Outcomes
(Section )
Operationalising
■ Screening
(Section )
■ Proactivity
(Section )
■ Investments
(Section )
Alignment
and calibration
■ Frameworks
(Section )
■ Regulatory
requirements/
standards
(Section )
ESG Integration
■ Approach
(Section )
■ Policy
(Section )
19Understanding responsible investment 3. Conclusion
Figure 2 shows how the eight components can be
organised to frame responsible investment as the product
of integrated thinking. This is characterised by the
innovative strategy development, the holistic management
of risks/opportunities, operational considerations, and a
commitment to accurate and complete reporting [9, 25,
70, 79]. [9, 25, 70, 79].
At the model’s core is the approach to integrating ESG
issues into the investment decision-making process
(Section ), and policies developed to formalise and
ensure the consistent application of the investor’s
sustainability strategy (Section ). Regulatory
requirements, industry best practices, and existing
sustainability standards (Sections and ) serve as
calibration tools. These ensure that firm level policies
are complete and aligned with regulatory requirements/
stakeholder expectations.
Operationalising the responsible investment strategy and
related policies will require the selection of appropriate
investments (Section ), underpinned by rigorous
screening (Section ) and meaningful investor proactivity
(Section ). The aim is to move beyond compliance to
embed sustainability into core operations, including how
investors engage with their material investees.
‘ Operationalising the responsible
investment strategy and related
policies will require the selection
of appropriate investments,
underpinned by rigorous
screening.’
A close connection between policy-level considerations
and investment practice culminates in comprehensive
reporting to the investor’s stakeholders. The investor uses
its annual, integrated or sustainability report to provide an
account of how its responsible investment strategy has, for
example, contributed to competitive returns, altered its risk
exposure, and driven operational revisions (Section ).
The policies, frameworks and regulatory requirements
(Sections and ) used to calibrate firm-level policies
are used as a type of sense-check and to ensure the
completeness of information reported to stakeholders.
As outlined in earlier ACCA reports [25, 35, 70] and
related academic literature [80-82], this type of reporting
reduces information asymmetry, enables accountability,
and builds confidence in capital markets.
Finally, the responsible investment space continues to
evolve rapidly. The components discussed in this report
– and presented in Figure 2 – represent the current state
of knowledge and practice, synthesised from extensive
research and industry experience. It will be necessary
to update the integrated thinking model in response to
changing facts and circumstances. For example:
■ ESG Integration: Evolving regulatory landscapes
may introduce new requirements or standards that
investment practices must incorporate.
■ Operationalisation: Innovations in financial instruments
and structures will create new opportunities for
implementing responsible investment strategies.
Advances in science continue to deepen our
understanding of environmental and social impacts,
potentially requiring new or modified investment
approaches. This will have implications for how
investors identify and respond to the impact of their
capital allocations as part of their screening and
investment selection processes.
■ Accounting and reporting: Growing stakeholder
expectations regarding transparency and impact
will drive further developments in reporting and
accountability mechanisms. Emerging technologies
for data collection, verification and analysis will
enhance the ability to measure, manage and
report sustainability performance.
Given the dynamic nature of responsible investment, the
components in the integrated thinking model should not
be interpreted as exhaustive. Investment professionals
should view this framework as a dynamic foundation
rather than a static blueprint – one that requires ongoing
engagement with emerging research, standards and
best practices.
20Understanding responsible investment 4. Appendix
Appendix A:
Summary of resources used
A1: Search protocol
The Scopus Database was used to obtain academic
sources. This database was selected because of the
quality of its filtering criteria and inclusion of reputable
journals with robust peer-review processes in place
[1, 2].
To begin, a search was performed for articles
published in the Scopus Database with terms related
to the concept of responsible investment1 in their
titles, keywords or abstracts. The subjects were filtered
and limited to incorporate responsible investment in:
business, finance, accounting, assurance, economics,
risk, governance, ethics, policy, sustainability, capitals,
strategy and management. The start date for the
search was 1992 – the earliest date available for
research published on this topic. All papers published
between 1 January 1992 and 28 February 2025
were considered. The initial results consisted of
1,724 documents, indicating a substantial body
of academic research dedicated to investigating
responsible investment.
To refine the search, only academic articles addressing
sustainability-related frameworks, regulations and
guidelines were included2. This was to ensure that a
practical focus was retained to bridge the academic
and practitioner discourse – the result was
113 documents.
The researchers took additional steps to ensure the
completeness of the responsible investment search.
The search was re-run again after a month to ensure
that no relevant papers were omitted. The papers
were screened to ensure they did only address
responsible investment in general – but examined how
strategies and business models, operating processes,
management practices, accounting systems and
governance structures are being developed in
response to the growing need for an integrated
perspective on investment decisions.
Preliminary results were tabled at two informal
meetings of a research and professional accounting
group at the researchers’ home institution to confirm
that the coding process was accurate and complete.
A bibliometric analysis was then performed.
Understanding responsible investment
4. Appendix.
Appendix A: Summary of resources used
■ Provides an overview of the method followed to generate
the report
■ A visual map of the research is included
Appendix B: Environmental metrics and KPIs
■ Expands on the scope of KPIs which could be used by
responsible investors
■ Provides an example of how the characteristics of the KPIs
could be mapped to the eight components in Section 2.
1 The following specific search protocols were used: ‘responsible investing’ OR ‘responsible investment’ OR ‘socially responsible investing’ OR ‘socially
responsible investment’ OR ‘ESG investing’ OR ‘ESG investment’ OR ‘sustainable investing’ OR ‘sustainable investment’ OR ‘green investing’ OR ‘green
investment’ OR ‘corporate socially responsible investing’ OR ‘corporate socially responsible investment’ OR ‘stewardship investing’ OR ‘stewardship investment’.
2 In addition to the search terms above, the following terms were included: AND ‘PRI’ OR’LEAP’ OR ‘GRI’ OR ‘Equator principles’ OR ‘Sustainable Development
Goals’ OR ‘Millennium Development Goals’ OR ‘SDG’ OR ‘MDG’ OR ‘ESRS’ OR ‘integrated reporting framework’ OR ‘Natural Capital Collation’ OR ‘Task Force for
Climate Related Financial Disclosures’ OR ‘Task Force for Nature Related Financial Disclosures’.
21Understanding responsible investment 4. Appendix
The bibliometric analysis provides an overview of
the relationship, volume and impact of the research
through various techniques, frequency analysis, citation
analysis, authorship, and country affiliation analysis
[3, 4]. Bibliometric tools including citation, co-citation,
bibliographic-coupling, and keyword co-occurrence
analyses are applied to the refined 113 academic sources
[5].
Bibliographic-coupling analysis measures the similarity
between two documents based on the number of shared
references and infers common themes from the sources
they cite [4, 6]. Keyword co-occurrence analysis maps
the frequency of articles with the same keywords [4] –
indicative of articles which have connected themes [6].
This analysis allows for the research themes/components
to be identified and developed. In line with other
bibliometric studies [3, 7], VOSviewer software [see 5] is
used to generate textual and graphic representations of
the results.
A2: Overview of responsible investment
Figure A1 illustrates the growing interest in responsible
investment research over time.
As shown in Panel A, in 1993 a seminal paper explored
ethically and socially responsible investing during the
1980s and made an early link to improved financial
performance [8]. The ‘green investment’ movement
continued during the 1990s as environmental politics were
used to frame accounting information as fundamentally
intertwined with ethical, social and political decision-
making, as well as policy evaluation in the context of
investment decisions [9].
Academic research on responsible investment in the
early 2000s focused on integrating ESG factors into
investment decision-making [10]. Key studies debated the
fiduciary duty of investors and whether ESG screening
limited diversification [11, 12]. This period also saw a rise
in institutional investor activism promoting more holistic
business investments [13], partly in response to various
corporate governance failures [14, 15]. Early frameworks,
such as the United Nations Principles for Responsible
Investment (2006) began to shape the landscape as
research into responsible investment increased over the
next 10 years.
Steady research output from 2010 to 2019 reflects
growing interest from both academic and practitioner
communities in expanding investment decision-making to
address economic and environmental concerns, as well
as assuring the quality of underlying information [16-18].
Core topics focused on, for example, investment risk
assessment practices [19], broader stakeholder needs with
regards to responsible investing [17], impact investment
[18], and assessing the effect of assurance on investor
assessments [20].
Figure A1:
Number of academic sources focusing on topics related to responsible investment
Panel A: Total research on responsible investments
Number of publications
0
50
100
150
200
250
300
350
400
20052004 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 202420032002200120001998199719951993
Panel B: Total research on responsible investments aligned with a focus on sustainability frameworks
Number of publications
0
5
10
15
20
25
30
35
40
20202019 2021 2022 2023 202420182017201620152014201320122010
22Understanding responsible investment 4. Appendix
The notable increase in research from 2020 to 2024 can
be attributed to two key developments. First, the COVID-19
pandemic iterated the importance of incorporating
financial and extra-financial metrics into an organisation’s
investment decisions, operations, strategies, and
performance evaluation [21]. Second, the formation of the
ISSB and its release of two exposure drafts explaining how
organisations should address the interconnections among
economic, environmental and social issues [22] with the
related assurance standard.
Similarly, from 2024, the EU’s Corporate Sustainability
Reporting Directive (CSRD), imposes mandatory
reasonable or limited assurance on sustainability reports
and a broader consideration of sustainability outputs and
outcomes [23]. These developments contributed to the
recent growth in responsible investment research, in line
with evolving international sustainability agendas.
The highest impact academic paper – with over 4 600
citations – analyses over 2,200 studies and concludes
that over 90% of academic research finds a positive
relationship between ESG-related criteria for investment
decisions and corporate financial performance [16]. This
highlights that academic research is overwhelmingly in
favour of an integrated approach to investments. However,
how this is operationalised and evaluated still remains
underdeveloped.
From the perspective of practitioner-focused research
indicated in Panel B, early studies concentrated on the
value proposition of the UN PRI [24, 25]. More recently,
research has also incorporated broader sustainability-
related guidelines such as the SDGs [26] and the GRI [27]
from the perspective of incorporating these principles into
investment decisions. Nevertheless, research remains
relatively underdeveloped – particularly in light of the
ongoing lack of harmonisation across sustainability-related
frameworks and the need to ensure their interoperability
[28]. Understanding how updated sustainability
frameworks are used as part of broader investment
decisions is a valuable area for future research.
As indicated in Figure A2, research is primarily conducted
in the USA (16%) and UK (12%). Organisations operating
in these regions will often have a more sophisticated
accounting and management infrastructure to collect,
analyse and report on data used to drive responsible
investment decisions. These organisations also tend
to have access to more diverse sources of funding,
allowing them to incorporate a broader range of
social and environmental considerations into their
investment activities.
Although China (11%) features prominently, the economic
environment more closely exhibits features of developed
economies. Other developing or emerging economies
contributing to responsible investment research include
India (8%) and South Africa (4%). The limited volume
of research from developing economies is a concern,
given that responsible investing is intended to help
organisations tackle pressing social and environmental
challenges – many of which are having serious impacts
on the developing world.
Figure A2:
Research per jurisdiction
0 50 100 150 200 250 300
Sweden
Indonesia
Malaysia
Netherlands
South Africa
Canada
Italy
Australia
Germany
Spain
France
India
China
United Kingdom
United States
Number of publications
35
37
63
66
66
84
91
95
96
103
106
139
188
204
282
23Understanding responsible investment 4. Appendix
A3: Components of responsible investment
Using a bibliometric analysis and VosViewer software, the core academic papers that intersected with practitioner-focused
investment guidelines were consolidated to visualise the main themes covered by the sources under review [4]. The size
of each node indicates its prominence in the prior research. Distances between the nodes capture the interconnections
among them – with short distances indicating interconnected topics/themes/key words [6, 7]. Refer to Figure A3.
COMPONENT CLUSTER COLOUR KEY CONCEPTS
1: ESG integration Red This cluster focuses on ESG, corporate social responsibility and responsible investments
– which involves embedding extra-financial factors into investment decisions.
2: Sustainability
frameworks
Yellow This cluster includes themes such as sustainable development and corporate sustainability
– and how these form part of objective setting by responsible investors.
3: Screening
methods
Green Screening is a critical component of socially responsible investing. This cluster also includes
stakeholder theory – which can be used to support screening methodologies.
4: Investor
proactivity
Orange This cluster highlights responsible investment and ethical investment – which align
with proactive investor engagement and stewardship strategies.
5: Strategic
purpose
Purple How the interconnections among economic, social and environmental objectives are integrated
at the strategic level – including the management of impact investing.
6: Selection of
investment
options
Light blue This cluster focuses on the considerations being integrated into investment decisions – including
the classification of investments as ‘green’.
7: Regulatory
frameworks
Red Although less prominent, this cluster refers to disclosure principles that need to be considered in
line with sustainability-related frameworks. The risk of greenwashing cannot be overlooked.
8: Outcomes Brown This cluster, with some of the smallest nodes, considers financial imperatives for responsible
investment decisions.
Figure A3:
Network visualisation of responsible investment components
The components have been ordered from the most relevant to least based on the size of the nodes, citations of key
papers and the prominence of the themes in the academic research. Each component is explored in more detail in the
main body of the report. The delineation and explanation of each component per the main report was tested at two
workshops attended by practitioners and hosted by the researchers’ home institution.
24Understanding responsible investment 4. Appendix
Appendix B:
Environmental metrics and KPIs
The technical and academic literature suggest
that traditional financial performance indicators be
complemented by extra-financial measures. These
integrated performance indicators are characterised by:
■ Use of assurance over the underlying data (I1)
■ Considering performance over the short-, medium-
and long-term (I2)
■ Alignment with the applicable Sustainable
Development Goals (I3)
■ Recognition of the interconnections among economic,
environmental and social performance (I4)
■ Clear assignment of responsibility for achieving
objectives (I5)
■ Broad range of stakeholder engagement in setting
performance targets (I6)
■ Application of an appropriate materiality threshold (I7)
■ Incorporating controllable factors into the achievement
of objectives (I8)
■ Conducting post-implementation reviews (I9)
■ Reporting and tracking performance over time (I10).
[29-31].
Figure B1 provides an illustrative example of how the
integrated performance indicators can be applied to the
components of responsible investment. It also shows the
relative importance of each indicator when structuring
the performance incentive metric, along with relevant
implementation steps.
Figure B1:
Integrated Performance Indicators for Responsible Investment Components
INTEGRATED PERFORMANCE INDICATORS (IPI)
Responsible investment
components (ordered from
most relevant to least relevant
in terms of consideration)
I1:
Assurance
I2:
Timeframe
I3:
SDGs
I4:
Capitals
I5:
Responsibility
for application
I6:
Stakeholder
engagement
I7:
Materiality
I8:
Factors
impacting
achievement
I9:
Post-
implementation
review
I10:
Comparatives
1: ESG integration
2: Sustainability frameworks
3: Screening methods
4: Investor proactivity
5: Impact investing
6: Green and sustainable finance
7: Regulatory frameworks
8: Financial performance
Key
High relevance
Medium relevance
Low relevance
Key implementation steps:
1. Establish a governance structure with clear responsibilities
2. Develop data management system for all indicators
3. Create a balanced scorecard aligned with extra-financial objectives
4. Implement regular reporting post-implementation review cycles for stakeholders
25Understanding responsible investment 4. Appendix | 5. Contributors
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