Investing with purpose: Achieving your investment objectives with a responsible solution

What is responsible investment (RI)?

Responsible Investment (RI) is an investment approach that compliments traditional financial analysis by considering material environmental, social and governance data and issues.

Historically, responsible investment focused on exclusions, however, the modern version can avail of many different approaches, often combining them. These more modern approaches are outlined below:

At present, most responsible investment incorporates baseline exclusions, (such as controversial weapons, violations of UN Global Compact, tobacco production), combined with ESG integration alongside stewardship and engagement. This approach typically leads to a well-diversified solution with strong ESG characteristics. Both elements are consistent with long term investment.

Drivers of growth of responsible investment (RI)

According to a Morgan Stanley analysis of Morningstar data⁷, assets under management (AUM) in sustainable funds grew to US$3.56trillion as of 31st December 2024 which represented.c.7.0% of all AUM.

Evolving investor preferences are playing a significant role in this growth. Traditionally the responsible investment space was predominantly populated by faith-based investors, non-profits and endowments, however a growing number of corporate entities are employing this approach to align with their own corporate social responsibility initiatives. In addition, individuals are also contributing to growth in responsible investment AUM, as they seek to invest in a manner that minimises their adverse impacts on the environment and society. This approach is particularly popular amongst high-net-worth investors, as it is consistent with inter-generational wealth transfer, considering the world their children and grandchildren will inherit alongside assets.

Within Europe, EU’s Sustainable Finance Action Plan aims to encourage more funding to environmentally sustainable economic activities,  with a strong focus on activities that can play a critical role in assisting the EU in its goals of reaching a carbon-neutral economy by 2050.

Common myths associated with responsible investment

Responsible investment means sacrificing returns: A growing body of evidence points to this not being the case. However, it is dependent on the approach taken by the investor. An investor who follows an approach that integrates environmental, social and governance (ESG) data into the investment decision process can enhance a portfolio’s risk-return profile. Consideration of this data can enhance risk management and highlight potential opportunities. In addition, it can also result in desirable exposure to high quality companies.

It is not financially focused: Environmental, social and governance issues such as climate risk, supply chain standards and transparency, and corporate governance are material financial risks. A responsible investing approach can reduce a portfolio exposure to these risks.

It is just about exclusions: Historically, this was true however, the responsible investment space has evolved and additional, often complimentary approaches, include positive screening, ESG integration, and stewardship and engagement.

It is for a niche universe of investors: As stated above, an increasing number of individual investors have embraced a responsible investment approach. For clients with a long-term focus, employing a solution that will deliver on their return objective whilst also minimising adverse impacts on the environment and society is of increasing importance. It is also consistent with the transfer of values to the next generation as parents include their children in the investment education and decision-making process.

What responsible investment solutions do Davy offer ?

Davy has significant experience in the responsible investment space, having helped clients invest in a manner consistent with their values since the foundation of the firm in 1926 and is a signatory of the UN sponsored Principles for Responsible Investment.

The investor universe seeking to utilise a responsible investment approach has evolved and expanded, from faith-based investors to non-profits, endowments and corporates. More recently we have seen a significant number of individual investors follow this approach.

Davy provides these clients with well diversified multi asset fund of fund solutions that display strong responsible investment credentials. In building these solutions, Davy does not sacrifice its investment philosophy of diversification, as it is paramount in ensuring these solutions are appropriate for long term investment assets.

Diversification occurs across:

• Asset Class – Equity, fixed income, alternatives and cash
• Region – Global allocations
• Investment Manager
• Passive and active strategies
• Factors – Quality, growth, value
• Approach to responsible investment – independent viewpoints on ESG issues and performance of companies on material ESG issues

Responsible Investment Credentials include:

• Higher proportion of instruments that consider and integrate ESG risks and opportunities. Instruments are selected from a universe of UN sponsored Principals of Responsible Investment signatory firms.
• Significant carbon reduction vs the broad market
• Avoiding exposure to harmful activities - violations of UN Global Compact (which focuses on human rights, labour, the environment and anti-corruption), controversial weapons and tobacco.

Our solutions are classified as Article 8 – Promoting E/S characteristics under EU Sustainable Finance Disclosure Regulation (EU SFDR).

The Davy range of responsible investment solutions are served by a team of responsible investment professionals and a dedicated responsible investment committee. At the time of writing, discretionary assets in our responsible investment ranges stands at over €1 billion.

Carbon reduction equivalents

One practical approach to lowering our individual carbon footprint is by assessing our investment assets and seeing if a low carbon alternative is appropriate. This can have a meaningful impact, as illustrated by the following example.

The reduction in carbon emissions (based on Scope 1 & Scope 2 emissions) associated with employing a lower carbon global equity exposure is approximately 21.7 tonnes per €1m invested. This reduction in Scope 1 and Scope 2 emissions (tons CO2e / EUR million invested) is the equivalent to:

Source: Data is based on Scope 1 and Scope 2 emissions associated with 1m euro invested in Global Equity vs Global SRI Equity. Emissions factors based on UK DEFRA datasets

To find out more about our responsible investment solutions, why not request a call with one of our advisers today. Visit davy.ie/responsible.

¹Swiss Funds & Asset Management Association (SFAMA) and Swiss Sustainable Finance (SSF)

²US Sustainable Investment Forum (US SIF)

³Principals for Responsible Investing (PRI)

⁴CFA Institute

⁵CFA Institute

⁶Global Impact Investing Network (GIIN)

⁷Morgan Stanley: Sustainable funds’ performance second half 2024