Impact Investing: Environmental and Social Governance

Sustainable or Socially Responsible Investing is investing that takes environmental, social and governance (or what is often known as ESG) considerations into decision making, whether from a risk or opportunity standpoint. Yet Socially Responsible Investing is a very broad area, one which encompasses everything from funds with a religious mandate to portfolios which invest in alternative energy or water technologies. 

Unlike investors who follow traditional socially responsible investing (SRI) methods, ESG investors are often trying to change behavior. Some ESG investors may attempt to effect what they believe will be positive social good by advocating for changes in corporate policies. ESG investing is an evolution of the SRI concept, but with a different approach. Though some use the terms interchangeably, a distinction can be drawn based on how these concepts are incorporated into the portfolio management process and what investors are attempting to achieve.

The SRI process typically involves excluding certain investments from the portfolio - and that decision may be made without consideration to the portfolio return - making it an "allow/disallow" decision. In addition, an SRI investor’s primary goal is to disassociate from an activity; changing corporate behavior is usually a secondary consideration at best. In contrast to the "allow/disallow" behavior, ESG methods give a company a score, which can be used along with other data points when deciding to buy a company.

And as noted above, ESG investors may be more committed to enacting change through their investments. You chose the extent to which we use these screens for your portfolio. We incorporate socially responsible and ESG analytics across our platform.