When discussing investments with clients we often refer to ESG vs. impact investing. Many individuals ask us the difference between to two so we will explain now.
Environmental, Social and Governance (ESG) describes how responsibly a business is managed by showing how its operations affect its most material stakeholders such as its customers and employees or the environment. ESG data is widely used by investment managers because it helps them to understand material risks and opportunities that are associated with companies. ESG information can also be used as a tool to invest more sustainably.
A variety of portfolios can be created by ESG investing depending on the investment manager’s objectives and how the ESG information is used in their decision-making.
Impact investing is a defined investment strategy and intends to create a material, additional and measurable positive impact on society. Impact investing takes a more holistic approach by evaluating a company’s purpose reflected by its core products and services. Impact investment managers look for companies that are contributing to solutions to unmet social and environmental needs such as climate change, access to education or clean water. Impact investments offer significant long-term return growth potential.
Impact investing focuses on the faster growing parts of the markets and can offer attractive diversification benefits to a more traditionally managed portfolio. It also doesn’t necessarily mean taking more risks.
*Please note: Your capital is at risk. The value of your investments (and any income from them) can go down as well as up and you may not get back the full amount you invested. Past performance is not a reliable indicator of future performance.