Sustainability is one of the urgent challenges that the global community faces today, and impact investing tries to address such issues through the responsible allocation of the investors’ resources. Additionally, SRI or ESG helps you and your clients identify business improvement techniques and investment ethics. This post compares SRI vs. ESG vs. impact investing.
Concepts of ESG vs. SRI vs. Impact Investing Services
Several professionals work in socially responsible investing or ESG consulting. They use the abovementioned terms interchangeably, thinking these words imply identical ideas. However, we must discuss the difference between SRI, impact investing, and ESG services to appreciate their unique scope.
1| What Is ESG in Data-driven Investment Solutions?
ESG means a strategic investment evaluation involving the environmental, social, and governance analysis of a company’s performance to ensure investors buy stocks linked to sustainable organizations.
Also, companies and investors leverage innovative ESG data solutions to check corporate activities’ ecological and social impact. For example, the manufacturing industry requires a substantial supply of raw materials and energy. So, this industry can use green technology with renewable resources to enhance its ESG ratings.
Scope of ESG Consulting
Simultaneously, investors monitor these business models and learn how they protect the stakeholders’ interests. Consider how long working hours or workplace discrimination causes operational inefficiencies and damages the brand while increasing socio-psychological problems.
Finally, the governance pillar of ESG consulting audits the company’s data protection, legal compliance, and accounting practices. All the data obtained from ESG assessments generate insights and reports to guide investors in decision-making.
2| What Is SRI or Socially Responsible Investing?
SRI means integrating ethical criteria to buy socially beneficial corporate stocks while disqualifying companies whose practices adversely impact society’s long-term wellness.
If investors continue their financial assistance to socially harmful corporations, their business practices will keep sabotaging social stability and health. So, the SRI investors can use the social pillar of ESG data solutions to gather the required data and show which stocks benefit social good.
Scope of SRI
For example, an investment research firm might reveal that a company runs a firecracker manufacturing plant where child labor is rampant. Therefore, the investors refuse to invest in this company.
After all, firecrackers release biologically dangerous chemicals, and employing children in this risky work environment violates labor laws and child rights.
3| What Is Impact Investing in ESG Consulting?
Impact investing, or thematic investing, is an outcome-oriented investment philosophy that dictates every investment decision must lead to corporate growth, which goes together with tangible social benefits. So, practical results and their scale from an altruist perspective are vital in impact investing.
Strategists and international think tanks recommend that investors demand objective reports showing how the companies deliver the promised outcome corresponding to sustainable development objectives.
Scope of Impact Investing
Think of enhancing the quality of academic skills in the less developed regions. Investors can use their capital to assist international education enhancement efforts. They can invest in affordable web connectivity, IT systems, libraries, and laboratories to empower less developed regions by improving the skills of their next generations.
Impact investors can also promote green technology research and development (R&D) projects that have tangible gains across multiple industries. ESG data solutions can help impact investors track the progress of their portfolio companies and support non-governmental organizations (NGOs).
Components of ESG vs. SRI vs. Impact Investing
While multiple managerial roles describe impact investing as equivalent to SRI consulting or ESG services, their deliverables vary. i.e., ESG consulting reports have unique frameworks and sections, whereas SRI and impact investing firms have another approach.
1| Three Pillars of ESG Data Solutions
Industrial projects often collect natural resources through deforestation, mining, and synthetic mass production. The environmental pillar of ESG gathers data on such activities and how they influence the surrounding biomes or ecological cycles. i.e., the impact of deforestation on weather transitions.
Besides, ESG services evaluate the organization’s operations, including their carbon emissions, energy consumption, and waste management.
The ESG pillars concern social effects and analyze how the company handles human resource issues and workplace inclusion policies without stereotyping. Multilateralism, mutual respect, and cultural exchange are essential for higher ESG scores in the social dimensions.
The ESG ratings for governance depend on the security levels across all corporate communication channels. Additionally, bribing, corruption, and hiding conflicts of interest must attract immediate termination of parties responsible for such malpractices.
2| SRI Considerations
Companies that harm the human rights of their stakeholders in any capacity do not deserve to operate. Most businesses that violate human rights are often illegal and unprofessional. So, investors avoid investing in them.
Labor laws require proper implementation in organizations. Therefore, ESG data solutions investigate whether a company has violated labor laws. E.g. corporations must provide safety gear and health insurance support to their workers. Also, child labor is illegal.
Weapons manufacturing, gambling, substance abuse, and alcohol are some of the more socially disastrous business models in which investors have no interest due to ethical principles.
Moreover, investors avoid businesses that create addictive product designs to manipulate consumers into behaving compulsively. i.e., video games that impact the social lives of their users.
3| Impact Investing Metrics
The five categories of impact themes describe performance measurement metrics to audit whether the corporations have a reasonable percentage progress rate toward the identified impact goals.
For example, “access to essential services” is an impact theme that observes the quality of financial services, healthcare, and educational ecosystems. So, impact investors use ESG consulting services to gather statistics on bank accounts, patients, and students before they invest in your medical or academic enterprise.
Women empowerment and employment quality themes help investors analyze how a company enhances the gender balance at the workplace while increasing everyone’s living standards.
The impact themes of affordable housing and infrastructure development quantify the investor’s contribution to the construction and transportation projects. I.e., ESG services can extract the number of housing units, roads, waterways, trains, or airways based on the project overview. They also show how these infrastructure developments benefit the community and businesses.
Corporations and Funds in ESG vs. SRI vs. Impact Investing Services
Global businesses and investors are curious about which financial institutions and stocks have well-documented ESG mission literature with established historical performance data. Interestingly, many banks and similar financial institutions have made their ESG-ETF vehicles available.
Each corporation, with its inventory of financial instruments, addressess a unique combination of sustainability, inclusion, and transparency considerations. We have compiled the recognized brands you can refer to, compare, and explore.
1| ESG Investment Service Providers
Morgan Stanley features sustainability investment opportunities in affordable housing, plastic waste, and net-zero emissions. Also, you can explore iShares sustainability products or ESG vehicles that support renewable energy.
Many ESG funds exist in the US market and worldwide. Aberdeen US sustainable leaders have different ESG funds. You will also find environmental, social, and governance funds from Goldman Sachs and Vanguard.
According to Morningstar, Guinness Atkinson Alternative Energy (GAAEX) is also an essential ESG fund.
2| Socially Responsible Investing Firms
OpenInvest is an SRI platform that champions transparency and a sustainability accounting philosophy while enabling tax optimization features natively. Investors create a brokerage account to select value systems like climate change resolution or social equality.
Also, you want to know about Ellevest in the US because it is a by-women-for-women enterprise that includes gender pay gap coefficients into its financial portfolio development for female investors.
Notably, it is an inclusive firm for all US citizens. So, anyone—woman or not—can use the standard SRI solutions from Ellevest. It focuses on three SRI domains: women leadership, community projects, and sustainable businesses.
The Wunder Capital has a unique SRI mission involving solar power projects that aims to increase their commercial viability for all. Furthermore, the energy department’s insights help Wunder navigate the intricate financial relationships in the underwriting of solar projects.
3| Impact Investing Vehicles
Triodos investment management in the Netherlands handles several sustainable investing funds, and it has been active in the impact investment space since 1995. The stakeholders of Triodos are concerned with organic farming, renewable energy, healthcare, and education.
It is one of the founders of GIIN, a global impact investing network. Meanwhile, the CRF, meaning community reinvestment fund, which has existed since 1988, is present in Minnesota. It is a non-profit institution and works on the community development model like the Philadelphian reinvestment fund.
Switzerland’s BlueOrchard Finance SA operates in more than 80 emerging markets worldwide. Latin America, Asia, and Africa are its primary regions. Additionally, its impact investing helps Eastern Europe with a global sustainability approach. i.e., hunger and poverty resolution, green food production technology, and education projects.
Conclusion
Hopefully, you have understood the differences between SRI, impact investing, and ESG data solutions. All three techniques help investors ensure their capital facilitates socially, environmentally, and legally responsible corporate growth.
Consumers love it when businesses promote ethical practices while proactively dealing with pollution and recycling. Indeed, investors share identical sentiments concerning the role of corporations in realizing the sustainable development vision.
Equality and sustainability are two core values that drive today’s international landscape. So, businesses and investors require reliable, data-driven investment strategies in ESG and similar criteria.
SG Analytics, a leader in ESG services, empowers organizations to build effective sustainability investment strategies and robust impact evaluation benchmarks. Contact us today to access over 25000+ data sources while increasing compliance across all ESG frameworks.
