According to the United Nations’ Principles for Responsible Investment, this is a strategy and practice to incorporate environmental, social, and governance (ESG) information in investment decisions and active shareholder ownership (see below). Responsible investing tends to be defined as focusing on priorities from a risk and return perspective, unlike socially responsible investing, which has been associated with ethical or values-based priorities. However, many in the investment community use these terms interchangeably.
This refers to the practice of considering ESG issues when building a portfolio—which securities should be included and how they should be weighted. One of the most common techniques is the use of screens. ESG screens allow investors to identify which companies are eligible for investment based on information such as environmental stewardship, labor standards, human rights, or basic governance practices. Another technique is integration, initially a term reserved for fundamental analysis where ESG information was used to adjust the forecasted financials. However, it’s now also used to refer to quantitative techniques in which the ESG information is used to reweight portfolio constituents without any stock-level analysis.
Active ownership This term covers proxy voting, direct engagement, and shareholder resolution filing—activities intended to harness investors’ ownership rights to influence the behavior of the companies they own. According to the PRI, it’s one of the fastest-growing responsible investment strategies in listed equity globally. It’s commonly viewed as a proxy for “impact” in listed equity. This is because investors usually transact on the secondary market and don’t typically fund new ventures. This makes it harder to achieve additionality through the purchase of shares alone.
New investing terms Cryptocurrency
Also called crypto, this is an encrypted form of currency that investors buy, sell, and trade virtually across decentralized digital ledgers known as blockchains. The best-known form of cryptos include Bitcoin, Ethereum, and Ripple. Unlike other currencies, cryptocurrencies aren’t issued by centralized monetary authorities.
These are units of equity worth less than one full share, resulting from corporate actions such as stock splits and mergers. Unlike full shares that trade on open markets, fractional shares are bought, sold, and traded through brokerages. Some brokerages split full shares on their own to make them more affordable for retail investors.
Meme stocks These are stocks that see dramatic spikes in trading volume as a result of online trends, typically resulting in temporary periods of overvaluation. Meme stocks are especially popular among younger and less experienced investors.
The bottom line For both new and experienced investors, knowing the language can make a world of difference to the success of a long-term investment plan. April may be the official month of financial literacy, but investors should commit to staying informed all year round.