For many, putting your money to work in a way that secures a return without costing the earth is a balance worth striking.
“Retail investors can make a positive or negative impact through their investment choices. Most Irish people simply do not want their savings supporting fossil fuel, weapons, or tobacco companies,” says Ciarán Hughes of Ethico, an ethical investment company.
Others go further and want to actively invest in positive industries such as green energy, sustainable infrastructure, and healthcare.
“While an individual’s impact may be modest, collectively changing how we invest our money has a real-world impact. For example, one house with solar panels won’t save the world, but if every house in your town has made the switch, we are moving in the right direction,” says Hughes.
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The fact that Central Bank of Ireland rules make it mandatory for financial planners to address responsible investing as part of the Know Your Customer (KYC) fact-finding process is helping to match investors with the vehicles that best suit their needs, says Nick Charalambous of Alpha Wealth. But it’s a complex area.
“Investors with low to moderate sustainability preferences can broadly find funds that match their needs. Clients with higher or more specific ethical goals need to first take a deeper dive to understand what they want and what is available to them,” says Charalambous.
It is a tricky path to navigate, replete with acronyms and “articles” – the EU regulatory categories that denote how “green” a fund is.
There is no single definition of responsible investing, says PwC asset and wealth management partner Olwyn Alexander. “It is more of a spectrum of approaches. It involves considering how capital is deployed and what outcomes it supports, usually over the long term. When an asset manager is asked to manage money for an investor, they focus on solutions for the investor – determining what are the outcomes that investor wants to achieve, and then they tailor a portfolio with those outcomes in mind. Some investors will want to maximise returns, minimise or manage risk, while others will also want to embed other ‘responsible’ outcomes such as simple exclusions or considering social, governance or environmental impacts through their investments.”
Naturally, as it is a spectrum, there are different shades or degrees of responsible investing. “Some approaches to responsible investing consider how companies manage long‑term risks and opportunities while others seek strategies that actively direct capital towards projects designed to deliver a specific social or environmental outcome,” says Alexander. “That breadth of approaches reflects the flexibility built into responsible investing, which also means the term can be used to describe a wide range of strategies. Ultimately, it is about using capital in a way that supports the broader economy and society over the long term, while allowing investors to decide how far they wish to go based on their own objectives, risk appetite and priorities.”
“Responsible investment explicitly integrates environmental, social and governance (ESG) issues into the investment process, in addition to traditional assessments of risk and return characteristics,” says Patrick McLaughlin, head of responsible investment multi asset solutions at Davy.
It’s a journey that should ideally start with a financial adviser with expertise in the area.
“This conversation should take place within the context of a comprehensive financial plan that has identified your investment objectives, time horizon, and risk appetite,” says McLaughlin.
The issues that matter most to each individual investor will vary. “Is it carbon emissions or is it the behaviours exhibited by companies you plan to invest in? Do you wish to invest in the companies that already exhibit the best sustainability credentials or those that are improving?” he asks.
“Clarifying the client’s objectives and identifying the ESG issues that matter most to them helps determine which investment solutions are best aligned with their values and financial goals.”
European investors benefit from ongoing efforts to strengthen the sustainable finance landscape, including through the Sustainable Finance Disclosure Regulation (SFDR).
It requires financial market participants to disclose how they integrate sustainability risks and ESG factors into their investment decisions.
“The primary aim of the initial EU SFDR was to enhance transparency and comparability across sustainable investment products and to reduce the risk of greenwashing,” says McLaughlin.
Effective since 2021, the SFDR is also designed to support the EU’s broader objective of redirecting private capital toward achieving its 2050 climate goals.
Last year, the European Securities and Markets Authority, an independent European Union authority which aims to improve investor protection, expanded on the SFDR.
It sets out the specific investment characteristics required for products to qualify for a sustainability-related label, to further reinforce consistency and credibility across the market.
“The proposed EU SFDR 2.0 refines the original framework in response to feedback from financial market participants, who highlighted the need to shift away from a purely disclosure‑based regime toward a clearer, categorisation‑ and label‑oriented approach,” says McLaughlin.
Stakeholders had raised concerns about complexity and the high costs associated with complying with the existing disclosure rules.
According to the European Commission, the changes will address such shortcomings, making the rules simpler, more efficient, and better aligned with market realities. The revised rules will be more retail‑friendly and more usable for companies.
“For the first time, the new framework introduces four defined categories of investment products, each with clearly outlined minimum criteria and baseline exclusions aligned with its classification. This aims to provide greater clarity for investors, improve comparability, and enhance confidence in sustainability‑related investment claims,” says McLaughlin.
“Together, these developments are intended to strengthen investor confidence by ensuring that responsible investment claims made by products are accurate, credible, and not overstated.”
