28 Oct 2021

Implementation of RI in ELS Strategies

Practical guidance for Responsible Investment in Equity Long/Short strategies.

Equity-based strategies are diverse, investments can be in both public and private equities, make use of long and short positions, and may include derivative positions. Discussion on Responsible Investment (“RI”) within equity strategies has historically been centred on traditional long only portfolios. However, with RI rising in both importance and prominence, long/short equity portfolios are now also in focus.

The nature of equity instruments means there are increased opportunities for implementation of RI using exclusion, inclusion, or impact strategies. These instruments typically also offer a range of possibilities for engagement. Each of the instruments and investment techniques used within equity long/short strategies have different considerations for both integration of financially material RI risks and dedicated RI products with specific objectives.

This memo acknowledges that there is no single way to view RI within a portfolio and contains many items that asset managers and allocators should discuss.

This memo looks at the following for the different instruments traded within this strategy:

  • Data availability and reliability,
  • Responsible Integration: Including financially material RI related risks in the investment process but not pre-defining an investment universe using RI criteria,
  • Responsible Asset Selection: Dedicated RI approaches including exclusions, inclusions, and impact strategies, and 
  • Responsible Asset Ownership: Voting, engagement, and activism.