Responsible Investment and Central Bank Asset Management

Over the last decade, responsible investment—the consideration of environmental, social and governance (ESG) issues in investment decision-making—has spread widely throughout the financial sector. Its adoption is due to its perceived usefulness in identifying risks and opportunities, particularly among larger asset owners, support from regulators and a vigorous supply-side response from investment service providers. Approaches pursued by investors include negative screening, thematic investing, ESG integration and active ownership. This chapter reviews recent trends in responsible investment and discusses how institutional investors are applying its techniques to both directly managed and third party-run portfolios. For the former, approaches vary by asset class. Responsible investment practices are more developed for listed equity, but they are becoming increasingly applied in corporate and sovereign fixed income and alternative investment markets. For indirectly managed portfolios, responsible investment practice is focused on managing the relationship between the asset owner and the investment manager to ensure the former effectively communicates expectations, and the latter is able to deliver against them.