The ABCs of Sustainable Investing

By September 6, 2017Impact Investing

 

The terminology around sustainable investing can at times be confusing to investors:  ESG, SRI, Impact Investing – what is the difference?


At Gitterman Wealth Management, we look at Sustainable Investing through the lens of the pyramid.

ESG (or Environmental, Social, and Governance) Investing is the pyramid base.  It’s good due diligence data that’s available now to incorporate into how we look at portfolios.  It’s not screening out negative companies; it’s not doing socially responsible investing; it’s using really good information that is more readily available every day through big data and artificial intelligence (AI) to make decisions about what stocks you want to own.

Above ESG, we place SRI (or Socially Responsible Investing), where we can layer a values-based approach with our clients based on the screening out of certain sectors.  Somebody might want fossil fuel-free, gender lens, fire arms or tobacco free.  SRI can be layered on top of any ESG screening, but they are not the same thing at all.

At the very top of the pyramid is Impact Investing.  This is where a company is being held to a specific standard that they agree to up front; to have a measured impact on something; most likely the UN SDGs (Sustainable Development Goals).  Impact companies are going to have a measured impact on these goals, and they are going to agree in their proxies and reporting to show how they are doing with those measurements.  That’s Impact.

ESG, SRI and Impact Investing are three very distinct sectors, and each one builds on top of the other.  For more information about Gitterman Wealth Management’s work with ESG, SRI, and Impact Investing, please visit our SMART Investing Services webpage for clients and investors, and our SMART Portfolio Services webpage for financial advisors.

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Author Jeff Gitterman

Jeff Gitterman is a co-founding partner of Gitterman Wealth Management, LLC, and a thought leader in the field of Sustainable, Impact, and ESG (Environmental, Social, and Governance) Investing. He is the creator of his firm’s SMART (Sustainability Metrics Applied to Risk Tolerance)® Investing Services, which offer investment opportunities for individual clients, as well as research and investing services for other financial professionals in the Sustainable, ESG, and Impact arenas.

Noted as an “ESG expert” by Financial Advisor magazine, Jeff has also been featured in the past in Money Magazine, Barron’s, Morningstar Magazine, The Wall Street Journal, CNN, and Affluent Magazine, among many others.

Jeff deeply believes that the migration of investor capital towards more Sustainable, Impact, and ESG investments is one of, if not the most effective way to help realize the United Nations’ Sustainable Development Goals (SDGs), and he is committed to helping both investors and other financial professionals navigate the rapidly growing Sustainable, Impact, and ESG Investing landscape.

More posts by Jeff Gitterman