Glossary of terms

Responsible investment terms

Responsible Investment (RI) is also known as socially responsible investment (SRI) or ethical investment. It covers a variety of approaches that incorporate environmental, social and governance (ESG) concerns into the way investments are managed. The main reasons responsible investment strategies are implemented are to enhance returns for investors, reduce risk for the companies and give investors a way to save that does not have a negative impact upon people or the planet. Screening and engagement, explained below, are two key strategies used by ethical investors. Click here to find out why socially responsible investment mattters or click here for research on how responsible investment boosts performance.

Corporate Social Responsibility (CSR) is an approach to business which takes into account the economic, social and environmental impacts in the way it operates. It encompasses a wide range of practices related to all levels of business activity, including corporate governance, employee relations, supply chain relationships, customer relationships, environmental management and community involvement. Investors in companies, including institutional investors like pension funds, can use their leverage (through engagement) to encourage companies to reduce their negative social and environmental impacts.

Screening refers to the inclusion or exclusion of stocks and shares, bonds or properties in investment portfolios on social, environmental and ethical grounds. "Negative" screening excludes investments that are deemed unacceptable from the portfolio (commonly the goal of disinvestment campaigns). "Positive" screening specifically includes into an investment portfolio, companies with superior social, environmental and ethical performance.

Engagement , also known as "shareholder activism", refers to the process by which investors seek to improve a company's social, environmental and ethical performance by means of dialogue with the company's directors, and voting at company Annual General Meetings. Dialogue and engagement are the approaches which FairPensions advocates. As the legal part-owners of companies, pension funds and fund managers wield a massive amount of influence over business and can even (with enough backing from other shareholders) hire or fire boards of directors.

Pension-related terms

Additional Voluntary Contributions (AVCs) are additional contributions made to a pension fund by individual pension holders.

Defined Benefit (DB) Pensions (also known as a "final salary" schemes) predetermine the benefits an employee receives on retirement, depending on factors such as the number of years worked and the size of their final salary.

Defined Contribution (DC) Pensions are those where the contributions of the employer and employee are pre-determined. The income paid out on retirement is not set and will depend on the prevailing savings rates at the time and the size of their fund, amongst other factors.

Occupational pensions, also known as "workplace pensions", are created and run by a company or organisation for the benefit of its employees.They differ from government pensions and personal pensions which are set up by the state or the individual respectively. In 'contributory' schemes both the employer and employee put money into the fund which grows tax-free during the savings period. In 'non-contributory' schemes, only the employer makes a contribution. In general terms a pension is a long-term savings vehicle which can offer significant tax benefits.