Investopia.com

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.

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 world as they are to their bottom line.

Socially responsible investing and one of its subsets, impact investing, have attracted more than one-third of the assets under professional management in the U.S., according to a 2020 survey by the U.S. Forum for Sustainable and Responsible Investment. That amounted to more $17 trillion in assets under management based on socially responsible criteria, an increase of 42% from 2018.1

The growing demand has fueled a proliferation of funds and strategies that integrate ethical considerations into the investment process. Environmental, social, and governance (ESG), socially responsible investing (SRI), and impact investing are industry terms often used interchangeably by clients and professionals alike, under the assumption that they all describe the same approach. However, these terms have subtle differences of meaning.

ESG

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