Sustainability concerned investments are gaining its spotlight. The most commonly heard and implemented investment trio are: socially responsible investing (SRI), ESG investing, and impact investing. Though in a glance the three investment strategies sound similar, each has distinctions that differ them apart.
Socially Responsible Investing (SRI): having moral ethics as the compass
The key characteristic of socially responsible investing (SRI) is boxing businesses into “good” and “bad”. What counts as bad and good depend on each investor. Hence, investors’ religion and view on moral ethics heavily affect their decisions. Businesses that are not in line with the investors’ view will easily go into the “pass” list. Guns, gambling, and adult entertainment are some of the businesses that often get a pass from SRI investors.
Environmental, Social, and Governmental (ESG) Investment
The very first distinct characteristic of ESG investing is that it covers more issues than SRI. In fact, ESG investors follow certain criteria upon settling on their final investment decision. The ESG criteria weigh the integration of environmental, social and governance factors in businesses.
Different from SRI that automatically exclude “unethical” businesses, ESG investing go through several steps before proceeding with the investment. One strategy pointed by Adec Innovations is Gitterman Wealth Management method. It starts with screening businesses that conform to ESG criteria. After that, investors choose businesses that could bring a promising impact. ESG investing does not need to be mutually exclusive. This means the investment could generate both profits and impacts on related issues at the same time.
The ultimate version of SRI and ESG investing: impact investing
Adec Innovations claims that impact investing is by far the most advanced investing out of the three. Similar to ESG investing, impact investing also deals with creating a change in environmental and social issues. However, financial returns and changes in environmental and social affairs are not mutually exclusive. Hence, investors value both gains equally and expect to achieve both goals through the investment decision.
Now that you’ve understood the differences between socially responsible investing (SRI), ESG investing, and impact investing, which one do you think suit yourself the best?
Read also: Sustainable Investing: How Experts Perceive It
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