While it is more necessary than ever to redirect capital towards sustainable activities, it is not always easy for investors to identify companies that offer products and services whose environmental and social impact can be seen as positive. Objective criteria are essential and Ethos has therefore developed its own positive impact methodology. Published in a summarised version, it groups together in ten themes the activities that play a key role in the transition to a more sustainable economy.
Ethos has developed a positive impact methodology whose objective is to identify companies that have a positive environmental and/or social impact and that contribute to the transition towards a more sustainable economy. This methodology – the summary version is published today – is part of a context where it is more necessary than ever to redirect capital towards sustainable activities, especially if the economy intends to limit global warming in accordance with the objectives of the Paris Agreement.
“One of the major challenges of sustainable finance today is to consider not only the ESG risks that can have an impact on companies but also to take into account their own impact on civil society and the environment. This is called double materiality, underlines Vincent Kaufmann, CEO of Ethos. However, there is no universally accepted definition of what is sustainable or not. Despite the work done by the European Union as part of its own green taxonomy, the classification has been somewhat discredited in recent months following the inclusion of nuclear power and natural gas and is limited for the moment to the sole dimensions climatic”.
Ten sectors identified
Ethos’ new methodology, which is intended to be scalable, will thus make it possible to identify and quantify the share of a company’s turnover – and consequently of investment portfolios – which can be considered to have a positive impact from a social and/or environmental point of view. In this way, it will be easier for Ethos and its clients to invest in priority in these companies and sectors of activity.
Ethos has grouped the activities that play a key role in the transition to a more sustainable society into ten distinct themes (see the list). To be included in the Ethos positive impact classification, these activities must be the foundation of a just and equitable society and must not violate planetary boundaries. The principles of sufficiency and “do no significant harm” – i.e. the fact that an activity which contributes positively to one aspect of the transition must not significantly harm other environmental and social aspects – as well as the analysis of the life cycle of products and services, are also central criteria of the methodology.
By defining strict criteria for the ten different themes, Ethos’ positive impact methodology also aims to establish a credible framework for the environmental and social reporting of companies at a moment when more and more of them are self-declaring part of their activities as being positive, especially with regard to the climate.
Update of the Ethos’ principles for socially responsible investment
Since its creation in 1997, the Ethos Foundation has favoured in its investment products companies which integrate social and environmental dimensions into their business model, which respect good practices in terms of corporate governance, and which respond to the concerns of their stakeholders. In 2017, Ethos clarified its approach to sustainable finance in its “Principles for Socially Responsible Investment (SRI)” – and thus formalised a framework for its own investment solutions.
In the interests of continuous improvement and transparency, the Ethos Foundation is now taking a new step by adopting a positive impact methodology and integrating it into its principles for SRI.