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ESG, SRI, and Impact Investing: What's the Difference?

By

澳洲幸运5开奖号码历史查询:Michelle Zhou

Updated January 13, 2025

Reviewed by Pamela Rodriguez

Fact checked by

Amanda Jackson

A farmer working with vegetables in a greenhouse. — Ariel Skelley / Getty Images

ESG, SRI, and Impact Investing: An Overview

Investing is no longer just about the returns. A growing number of investors also want their money to fund companies as committed to a better wo🦄rld as they are to their bottom line.

Socially responsible investing makes up 12% of the $52.5 trillion investment assets under management in the U.S., according to a 2024 survey by the U.S. Forum for Sustainable and Responsible Investment. That amounted to $6.5 trillion in assets under management that were marked as sustainable or ESG.

Tꦦhe g🌳rowing demand has fueled a proliferation of funds and strategies that integrate ethical considerations into the investment process.

澳洲幸运5开奖号码历史查询:Eꦺnvironmental, social, and governance (ESG), 澳洲幸运5开奖号码历史查询:socially responsible investing (SRI), and 澳洲幸运5开奖号码历史查询:impact investing are industry terms often used interchang🍒eably by clients and professionals alike, under the assꦕumption that they all describe the same approach. However, these terms have subtle differences in meaning.

Key Takeaways

A growing number of investors want to encourage companies to act responsibly in addition to delivering financial returns.
The terms environmental, social, and governance (ESG), socially responsible investing (SRI), and impact investing are often used interchangeably but have important differences.
ESG looks at the company's environmental, social, and governance practices alongside more traditional financial measures.
Socially responsible investing involves choosing or disqualifying investments based on specific ethical criteria.
Impact investing aims to help a business or organization produce a social benefit.

ESG

ESG refers to the environmental, social, and governance 澳洲幸运5开奖号码历史查询:criteria for evalu♉ating corporate behavior and screening potential investments.

The ESG evaluation supplements traditional financial analysis by identifying a company's 澳洲幸运5开奖号码历史查询:ESG risks and opportunities, which is to say the money they stand to lose by not acting on ESG risks and the money they stand to gain from seizing 澳洲幸运5开奖号码历史查询:ESG opportunities. Financial returns remain the prima🔯r♑y objective of ESG investing.

The table below lists some ꧒commonly considered ESG factors.

Environmental	Social	Governance
Energy consumption	Human rights	Quality of management
Pollution	Child and forced labor	Board independence
Climate change	Community engagement	Conflicts of interest
Waste production	Health and safety	Executive compensation
Natural resource preservation	Stakeholder relations	Transparency & disclosure
Animal welfare	Employee relations	Shareholder rights

SRI

澳洲幸运5开奖号码历史查询:Socially responsible investing goes one step further than ESG by eliminating or adding investments based solely on🤡 a specific ethical consideration.

For example, an investor might opt to avoid any mutual fund or exchange-traded fund (ETF) that owns the stocks of 澳洲幸运5开奖号码历史查询:firearms manufacturers. Alternatively, an invest𒅌or might seek to allocate a fi🍸xed proportion of their portfolio to companies that donate a high proportion of their profits to charitable causes.

🐭 Socially responsible investors might also avoid companies associated with:

Alcohol, tobacco, and other addictive substances
Gambling
Weapons production
Human rights and labor violations
Environmental damage

Important

According to the U.S. Forum for Sustainable and Responsible Investment, 73% of respondents believe the sustainable investment market will grow over the next one to two years from 2024.

Impact Investing

In impact or thematic investing, positive outcomes are of the utmost importance—meaning the investments need to produce a tangible social good.

The objective of impact investing is to help a business or organization achieve specific goals beneficial to society or the environment🔥. For example, ♍an impact investment might fund nonprofit research in clean energy.

Greenwashing

Though 澳洲幸运5开奖号码历史查询:sustainable i꧂nvesting is an ๊attractive option to align your investment goals with your beliefs, it should be approached with caution. Investors should be aware of "greenwashing," where companies or funds exaggerate or obfuscate the൩ir sustainability records in order to ꦑattract investors.

When looking for sustainable investment options, investors should consult with third-party reviews from agencies such as MSCI, Bloomberg, and Morningstar, rather than just the investment fund's marketing material.

What Is an Example of a Sustainable Investment?

A common example of a sustainable investment is renewable energy, like solar and wind companies. Investing in these types of companies which focus on renewable energy and seek to minimize harm to the earth's climate, aligns with sustainable investment principles. Additionally, investing in funds that only allocate capital towards such sustainable companies would be another option for sustainable investing.

Is ESG Investing the Same As Sustainable Investing?

Environmental, social, and governance (ESG) investing and sustainable investing are related but are not the same. ESG investing evaluates companies based on their performance and practices in managing environmental, so💛cial, and governance issues to assess risk and opportunities. Sustainable investing is a much broader ꦗapproach that aims to make investments that contribute positively to society, such as fighting climate change or supporting social causes.

How Do I Start Sustainable Investing?

To start sustainable investing, first, identify the causes and issues that are important to you. For example, if environmental, social, and governance (ESG) are important to ෴you, research sustainable investment options, such as ESG-focused ETFs, mutual funds, or green bonds. You can also search the many platforms or advisors that focus on sustainable investing to learn about additional investment options that align with your principles.

The Bottom Line

Accommodating the desire to do good remains no easy task given the growing 澳洲幸运5开奖号码历史查询:complexity of ESG analysis and the proli𝄹feration of financial products marketed as socially responsible.

Luckily, investors don't need to go it alone. Several rating agencies 澳洲幸运5开奖号码历史查询:score publicly traded companies on their sustainability goals. The agencies include Morningstar, Bloomberg, MSCI, and others.

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U.S. Forum for Sustainable and Responsible Investment. "."

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