Different types of strategy

Sustainable finance uses different types of strategies to integrate non-financial criteria into its investment decision : 

• A direct dialogue with companies to inform them of their ESG score and encourage them to improve their practices.
• Best efforts: only those issuers that have made the greatest efforts in the area of sustainable development are included in the portfolio. The issuers that have made the most progress are not necessarily the best in the universe in terms of ESG.
• Best in class which aims to select the best issuers in each sector without excluding any sector a priori
• Best in the universe, which aims to select the best issuers in the initial universe. This approach may lead to the exclusion of certain sectors whose contribution to sustainable development is not sufficient in relation to issuers from other sectors represented in the initial universe;
• Exclusion strategy: some companies are excluded, partially or totally, due to the nature of their activity (e.g. fossil fuels, controversial weapons, tobacco).
• Thematic strategies: investment is favored in specific sectors such as renewable energy, and carbon capture.
   

You will find some of these strategies implemented in MyFairMoney’s Funds database.

50 shades of finance, a dozen nuances of Sustainable Finance

Nowadays, the terms finance or investment are used with a lot of different adjectives. This can be very confusing.

Before presenting the difference between all these terms, it is important to note that different types of finance do not only take into account benefits and risks. They also take into account non-financial criteria.

Climate finance aims to fight against climate change according to article 2c of the Paris Agreement by taking into account the impact of climate change on the financial system and the impact of the financial system on climate change. 

In some cases, climate finance also aims to finance climate change adaptation activities. Thus climate finance pursues a goal (fighting against climate change) but also a value (financing economic activities aligned with ecological value). 

Ethical finance is a general term for all types of finance that aim to align investment with any moral value. 

Impact finance pursues a goal that is not necessarily linked with a value or a belief. Impact finance aims to create a positive change due to the investment. This change can be related to environment, society, economy, etc.
According to the Sustainable Investment Forum and Finance for Tomorrow, impact finance is based on three pillars: intentionality, additionality, and measurability.

Religious finance aims to invest in economic activities that are aligned with their beliefs, or at least that does not enter in contradiction with them. Some people consider that the use of religious finance is not linked to belief or faith but to religious practice. 

Sustainable finance aims to align investment with sustainable development objectives. The sustainable development objectives are in this case a value but also a goal to achieve. 

Sustainable finance is also built on three main principles: environmental, social, and governance. These 3 pillars aim to achieve sustainable finance objectives. The environmental pillar also known as green finance aims to protect the environment in its large definition (climate change, biodiversity, protection of the ocean, etc.). The social pillar aims to protect social rights (human rights, worker rights, gender equality, etc.). The governance pillar aims to add every concerned party to the decision. These pillars are usually used together to achieve sustainable finance.

The United Nations’17 Sustainable Development Goals