Responsible investing is a broad term, but at its core it’s all about managing risks and considering the impact your investments are having on the world (people, society and environment).

Responsible investing covers ethical investing and sustainable investing, terms that are used interchangeably and can sometimes be unclear.

Responsible investing also considers an acronym you may have heard of – ESG. It stands for Environmental, Social and Governance. The idea behind ESG investing is that these are the three core pillars a responsible investor should consider.

• Environment: this covers the environmental impact an investment is having, from carbon emissions to net zero commitments and direct impacts on the land from activities like mining. Environmental risks can also present financial, legal, or reputational risks, for example, a company could be left exposed to litigation if it causes damage to the environment. Or if it fails to meet legislated pollution standards it could face steep fines.

• Social: This is all about how investments treat workers up and down the supply chain and the communities they impact through their activities and products. There are a whole host of financial, legal, and reputational risks associated with this area. If companies treat workers poorly or has unsafe working conditions, it’s risking lawsuits, compensation and putting the stability of its workforce in jeopardy.

• Governance: This refers to how a company is run, the accuracy and transparency of its accounting, and how it reports to shareholders. Conflicts of interest, nepotism and corruption are all governance failures. There are obvious links to financial, legal, and reputational risks here because governance gets to the heart of how companies are run.

ESG has been in the news recently because US President Donald Trump is not a fan. He and his supporters have painted ESG, and by extension responsible investing, as something “woke” and carrying a nefarious agenda.

But as you can see from thinking about what ESG stands for, from an investing perspective it makes a lot of sense. It’s risk mitigation and management.

Your super is a long-term investment, designed to see you through the decades of your working life into retirement. A lot can change over that amount of time.

To weather those changes, and to be prepared for them, responsible investing is an important part of the picture.

One example from history that shows how responsible investing can help protect investors’ bottom line is what’s happened to tobacco companies. Decades ago, tobacco companies were among the world’s biggest businesses and must have seemed “too big to fail”. But after it became clear that they had covered up the fact that smoking causes cancer (you could put the cover-up down to governance failures) they lost their social license to operate, losing the ability to advertise and the consumer faith they once had. They faced crackdowns from governments on the sales of their products and were hit with huge lawsuits.

At smartMonday, we’re strong advocates for sustainable and socially positive investment practices and we apply ESG principles.

We instil ESG attributes in smartMonday portfolios mainly by seeking to work with investment managers whose own views are consistent with ours.

On top of that, we’re taking additional steps to reduce ESG risks by screening our international equities portfolio. Screening a portfolio means applying a set of rules, to rule out investment in certain areas.

Our screening process has removed investment exposure to fossil fuel companies, controversial weapons producers, tobacco companies, nuclear energy and uranium mining companies and gambling companies across all international equities.