SRI, ESG, & Impact Investing: What’s the Difference?

There are a lot of ways to do good in the world, and there are a lot of ways to invest. When good causes and investments combine, this leads to many more choices and a lot of terminology to learn. When looking into responsible investment options, you see the acronyms SRI and ESG a lot and see something referred to as “impact investing.” What do all of these things mean? Are they all different words for the same thing? While all three of those types of investing are similar in that they aim to make the world a better place, their exact goals are a little different. These differences could have an effect on the way that you invest your money.

Socially Responsible Investing (SRI) SRI was, traditionally, about making sure that no harm was done and is a more passive approach to responsible investment choices. Historical SRIs would often use negative screening criteria to filter through securities and exclude those that were seen as unethical, often those affiliated with alcohol, tobacco, gambling, weaponry, nuclear power, and fossil fuels. Over time, positive criteria became part of the screening process in order to reward those companies that stuck with their morals rather than their economic interests.

Environmental, Social and Governance (ESG) Investing The philosophy behind ESG investing is that companies that are good global citizens and take that seriously in their business practices will ultimately outperform companies that don’t. Companies that hold to ESG criteria are good environmental stewards, fair in how they treat their employees, customers, and suppliers, or ensure that their corporate policies line up with the expectations and interests of their shareholders. Investors who look at a company’s ESG criteria are interested in how the companies they invest in will perform when compared to their peers and also appreciate the insight into a company’s culture, including how it handles risk and its management strategies.

Impact Investing Impact investing aims to strike a balance between finances and responsibility for those investors who don’t want to sacrifice either. Investors of these securities want good returns as well as social benefits and invest in areas with the potential to create the positive changes in the world that they’re looking for. Like ESG investors, impact investors are interested in corporate transparency and the details in how a particular organization’s operations work. Unlike SRI or ESG investors, though, impact investors actively seek out the opportunities for the positive impact it could have.

Making a Difference with Prophecy Impact Investments No matter what you stand for, how you want to give, or how much you have to offer, there are likely to be investment solutions for you. Keep in mind that doing your homework and making decisions based on your beliefs as well as your risk tolerance and other investment considerations before you invest will do a lot of good. Prophecy Impact Investments is careful to screen every offering that comes our way so that we feel good about providing them to clients like you who care enough to demand responsibility and good work. To learn more about our process, the differences between the options we have, and what your impact could be, contact us online.