Responsible investing is an umbrella name for different investment approaches and solutions. There are many different terms being used in the market, such as sustainable, ethical and impact investing. Explore what they mean and the differences between them.
Sustainable investing is an investment philosophy adopted by investors that consider a company’s environmental, social, and corporate governance (ESG) factors. This allows investors to use their investments to promote wellbeing, positive societal impact and corporate responsibility.
ESG is a term that refers to Environment, Social and Governance. Each topic considers sensitive issues such as:
ESG investing relies on independent ratings that help you assess a company’s behaviour and policies when it comes to environmental performance, social impact and governance issues.
Ethical investing is a practice that gives individuals the power to invest their capital toward companies that have their practices and values aligned to their personal ethical values and beliefs.
Impact investing refers to investments made into companies, organisations, and funds with the intention to generate a clear measurable, beneficial social or environmental impact.
Socially Responsible Investing
Socially Responsible Investing (SRI), also known as social or responsible investment, is an investment strategy that considers the social and responsible nature of the business the company conducts. A common theme for socially responsible investments is socially conscious investing. Socially responsible investments can be made into companies with good social value.
ESG Screened Investments
ESG screened investments are designed with underlying funds that consider environmental, social and governance factors by avoiding or increasing exposure to specific companies, sectors or business practices. They are sometimes referred to as ‘exclusion-based’ or ‘negatively screened’, meaning certain investments are screened out. The exact restrictions will vary from fund to fund. Usually, the exclusion criteria of a fund are found in their factsheets or prospectus.
ESG reports unveil information which explains the impact an organisation has on ESG issues.
Sustainability reports, also issued by companies, show investors the performance across the three key ESG topics. Sustainability reports also report future objectives the business is pursuing.
Despite ESG reports not being mandatory, the increase of guidelines in corporate ESG information suggests it's generally expected of the business to share their strategy and objectives and demonstrate transparency with their investors.