ESG, SRI & Impact Investing: A Brief Walkthrough & Why We Choose to Go Beyond the Nomenclature

For a lot of the Responsible Impact Investing Industry, it is just another avenue, nomenclature and soundbites to make a lot of bucks for self, keep the door closed and hegemonize a finance capital sector that is historically already very close knit and hardly ethnically diverse. A brief sweep through the Staffing of most of the Industry bear this out. While there is no doubting that part of the industry means what it says by creating ethical value to ramp up ethical social impacts, the same cannot be said of the industry at large. Here is a brief revisiting of what the terminologies mean and resonate.

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

Investing is no longer just about the returns. A growing number of investors also want their money to fund companies as committed to a better world as they are to their?bottom line.

Socially responsible investing and one of its subsets, impact investing, have attracted more than one-third of the assets under professional management in the U.S., according to a 2020 survey by the U.S. Forum for Sustainable and Responsible Investment. That amounted to more $17 trillion in?assets under management?based on socially responsible criteria, an increase of 42% from 2018.

The growing demand has fueled a proliferation of funds and strategies that integrate ethical considerations into the investment process.?Environmental, social, and governance?(ESG),?socially responsible investing?(SRI), and?impact investing?are industry terms often used interchangeably by clients and professionals alike, under the assumption that they all describe the same approach. However, these terms have subtle differences of meaning.

KEY TAKEAWAYS

• A growing number of investors want to encourage companies to act responsibly in addition to delivering financial returns.
• The terms environmental, social, and governance (ESG), socially responsible investing (SRI), and impact investing are often used interchangeably, but have important differences.
• ESG looks at the company's environmental, social, and governance practices alongside more traditional financial measures.
• Socially responsible investing involves choosing or disqualifying investments based on specific ethical criteria.
• Impact investing aims to help a business or organization produce a social benefit.

ESG | Environmental, Social & Governance (ESG) Criteria

ESG refers to the environmental, social and governance criteria for evaluating corporate behavior and screening potential investments. The ESG evaluation supplements traditional financial analysis by identifying a company's ESG Risks and Opportunities, which is to say the money they stand to lose by not acting on ESG risks and they money they stand to gain from seizing?ESG opportunities. Financial returns remain the primary objective of ESG investing.

The table below lists some commonly-considered ESG factors.

SRI | SOCIALLY RESPONSIBLE INVESTING

Socially responsible investing?goes one step further than ESG by eliminating or adding investments based solely on a specific ethical consideration. For example, an investor might opt to avoid any mutual fund or?exchange traded fund (ETF)?that owns the stocks of?firearms manufacturers. Alternatively, an investor might seek to allocate a fixed proportion of their portfolio to companies that donate a high proportion of their profits to charitable causes.

Socially responsible investors might also avoid companies associated with:

1. Alcohol, tobacco, and other addictive substances
2. Gambling
3. Weapons production
4. Human rights and labor violations
5. Environmental damage

?Between 2018?and 2020, assets allocated to sustainable, responsible, and impact investing grew more than 42%, rising from $12 trillion in 2018 to $17.1 trillion in 2020, according to the U.S. Forum for Sustainable and Responsible Investment.

Impact Investing

In impact or thematic investing, positive outcomes are of the utmost importance—meaning the investments need to produce a tangible?social good. The objective of impact investing is to help a business or organization achieve specific goals beneficial to society or the environment. For example, an impact investment might fund nonprofit research in clean energy.

In A Nutshell

Approximately 38% of investors in a recent survey reported allocating assets to a responsible investing strategy, while 66% said recent climate disasters have made them more interested in responsible investing. The desire to invest ethically is especially pronounced among?millennials, the study showed.

Accommodating that desire to do good remains no easy task given the growing complexity of ESG analysis and the proliferation of financial products marketed as socially responsible.

In a Nutshell, ESG, SRI & Impact Investing are the Social Enterprise Version of the Traditional Financial Markets i.e. Investments with Social Impact Objectives. Sadly, just as Social Enterprises have their structural and Constructional Limitations, ESG, SRI & Impact Investing have to undergo fundamental RETHINK, REENGINEERING, REDESIGN & REPURPOSING to optimise their desirable goals. For these reasons and others, we choose to "GO & PITCH BEYOND" ESG, SRI & Impact Investing.