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.