Many people get confused around the terminology of investments, especially between Impact Investing, SRI, and ESG. They get used interchangeably but they’re actually very different.
Socially Responsible Investing, or SRI: Simply put, you avoid investments you think will cause damage to society or the environment. Avoiding investments in cigarette and alcohol producers, nuclear power operators, weapons manufacturing, and fossil-fuel producers are common examples.
Environmental, Social and Governance, or ESG Investing: The goal is to invest in companies striving to do what’s best for all their stakeholders — employees, customers, local communities and shareholders, while also limiting negative impact on society and the environment. ESG is more about how companies behave than the output of beneficial goods or services.
Impact Investing: The focus is on specific investment opportunities, often in the private markets. These investments aim to solve an environmental or social challenge, while also providing a profit. Impact investments are material, measurable and intentional, and tend to be more targeted in order to address very specific needs or challenges. That said, we recognize that many of these needs and challenges are interrelated.