Impact investing drives social and environmental progress through investments, while screening for risk and creating competitive returns.
Impact investing includes:
Investing in companies that will financially benefit because of their positive business policies and procedures in areas of Environment, Social/ Human Impact, and Corporate Governance. This is often referred to as ESG integration.
Divesting from companies that carry considerable risk due to unsustainable business models or industry. Divesting may also include screening out companies that are not in line with a client's personal values. This is often referred to as exclusionary or negative screening.
Lending capital to specific underserved communities. This is often called community investing.
Many of these techniques are often paired with shareholder engagement (also called advocacy or activism). Shareholder engagement uses proxy voting or discussions with corporate management to encourage corporations to make more sustainable environmental, social, and governmental decisions in their business practices.
Common Terms and Definitions
These frequently used terms are often interchangeable and all use some or all of the techniques described above.
- Impact Investing - This can be a general term but it is also often used to describe very local or targeted investing, also known as community investing.
- SRI (Socially Responsible Investing or Sustainable, Responsible, & Impact Investing) - Socially Responsible Investing was one of the first widely adopted names of this type of investing. It is often associated with divestment and engagement but can include all four techniques referenced above. Sustainable, Responsible, & Impact investing keeps the acronym but uses wording more specifically inclusive of the types of techniques used.
- ESG (Environmental, Social, and Governance) Factor Investing - ESG refers to the social, environmental, and governance metrics used to evaluate companies that may provide long term financial benefits.
- Sustainable Investing - This is a general term.
- Green Investing - Often indicates a focus on environmental concerns above other factors.
- Values Based Investing - Often indicates tailoring of investments to the clients unique values. This term is also used for investing tailored to clients' religious values.
- Mission Driven Investing - Often in reference to organizations and institutions aligning their investments with the mission and values of the organization.