The focus on sustainability and ethical investing has grown substantially in the last few years. But what is the difference between ESG, SRI, and impact investing? And how do investors concerned with the future choose where to focus their efforts?
At a high level, these investment categories have a lot in common and can help you determine which companies to support through an ethical lens.
However, it is critical that investors understand the nuance between these terms– while there is a good deal of overlap, they are not interchangeable.
Let’s dive in.
Environmental, Social, and Governance (ESG) Investing
Companies can qualify for an ESG score by meeting various metrics that concern environmental, social, and governance efforts and ethics. While an ESG rating does not make a company stock inherently high value, it can increase the value because of the popularity of funding future-minded companies.
Here are a few examples of how companies can prove they are interested in the ESG cause:
Environmental Criteria: One of the most popular efforts is to reduce carbon footprints through sustainable production and distribution.
Social Criteria: More companies either sponsor a charity promoting social change or create their own.
Governance Criteria: With the rising concerns over wealth disparity, companies are under pressure to close the gap between executive and rank-and-file pay.
Note: ESG rating agencies and third-party experts provide company ratings– however, it is essential to know that these agencies are not currently overseen by the SEC. So ESG valuation is not standardized, and companies can falsely claim ESG status.
Social Responsibility Investing (SRI):
ESG investing is sometimes confused with SRI assets since SRI investments may include many of the same companies that qualify as ESGs. However, SRI isn’t a rating by third-party agencies.
Instead, it describes a methodology of choosing investments that promote the social change that fits your morals. So, for example, you may avoid investing in industries known to ignore green initiatives or set an amount specifically for charitable companies.
Impact Investing
Impact investing is a broad term that includes any investment to support future good. It describes a methodology of intentionally supporting businesses that build a better world. Under this definition, both ESG and SRI can be considered subsets of impact investing.
Impact investing does not require any particular categorization or third-party awards– it’s all about choosing your investments that align with a cause beyond a financial return.
Ready to Invest?
The future is in our hands, and we all know that the causes that move forward are the ones with sufficient funding. At SSGC Holdings, we specialize in furthering both your finances and the world’s future through ESG and private equity investments. Contact us today!
References:
https://www.nerdwallet.com/article/investing/esg-investing
https://www.investopedia.com/financial-advisor/esg-sri-impact-investing-explaining-difference-clients/
https://www.investopedia.com/mid-cap-esg-investing-5225784
https://www.investopedia.com/terms/e/environmental-social-and-governance-esg-criteria.asp
https://www.businessinsider.com/personal-finance/esg-score#:~:text=Prominent%20players%20in%20this%20space,currently%20regulated%20by%20the%20SEC.
https://ssir.org/articles/entry/the_next_10_years_of_impact_investment#