Introduction

Impact investing and ESG investing are two approaches to sustainable investing that have become increasingly popular in recent years. While they are both concerned with social and environmental responsibility, there are some key differences between the two approaches.

What is impact investing?

Impact investing is a type of investment that is made with the intention to generate positive, measurable social and environmental impact alongside a financial return. Impact investors seek to invest in companies and projects that are making a positive difference in the world, such as those that are working to address climate change, improve education, or reduce poverty.

What is ESG investing?

ESG investing stands for environmental, social, and governance investing. It is an approach to investing that considers ESG factors when making investment decisions. ESG factors include things like a company’s environmental performance, its social responsibility practices, and its corporate governance structure. ESG investors believe that these factors can have a material impact on a company’s financial performance over the long term.

Key differences between impact investing and ESG investing

The key difference between impact investing and ESG investing is that impact investing is explicitly focused on achieving measurable social and environmental impact, while ESG investing is focused on integrating ESG factors into investment decision-making and risk management.

Another key difference is that impact investors typically have a more direct and concentrated approach to investing. They may invest in private equity funds, venture capital funds, or impact bonds, which are all designed to generate positive impact. ESG investors, on the other hand, may invest in a broader range of assets, including public equities, fixed income, and real estate.

Benefits of impact investing

Impact investing offers a number of benefits, including:

  • The opportunity to make a positive difference in the world by investing in companies and projects that are working to address social and environmental challenges.
  • The potential to generate competitive financial returns.
  • The opportunity to diversify your investment portfolio.
  • The ability to hedge against climate change and other sustainability risks.

Benefits of ESG investing

ESG investing also offers a number of benefits, including:

  • The potential to generate competitive financial returns over the long term.
  • The opportunity to invest in a broader range of assets.
  • The ability to reduce risk by avoiding companies with poor ESG performance.
  • The alignment of your investment portfolio with your values.

Which approach is right for you?

The best approach for you will depend on your individual investment goals, values, and risk appetite. If you are primarily interested in making a positive social and environmental impact, then impact investing may be the right approach for you. If you are primarily interested in generating competitive financial returns, then ESG investing may be a better fit for your needs.

Examples of impact investments

Here are a few examples of impact investments:

  • Investing in a renewable energy fund
  • Investing in a venture capital fund that invests in healthcare technology startups
  • Investing in an impact bond that is used to finance a new school in a developing country

Examples of ESG investments

Here are a few examples of ESG investments:

  • Investing in an S&P 500 ESG index fund
  • Investing in a green bond fund
  • Investing in a company with a strong track record of social responsibility

How to get started with impact investing or ESG investing

If you are interested in getting started with impact investing or ESG investing, there are a few things you can do:

  • Talk to your financial advisor to discuss your investment goals and risk appetite.
  • Research different impact investing and ESG investment funds and products.
  • Consider investing in a diversified portfolio of impact and/or ESG investments.

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Impact investing and ESG investing are two important approaches to sustainable investing. Impact investing is focused on achieving measurable social and environmental impact, while ESG investing is focused on integrating ESG factors into investment decision-making and risk management. The best approach for you will depend on your individual investment goals, values, and risk appetite.

Impact investing and the Sustainable Development Goals (SDGs)

The Sustainable Development Goals (SDGs) are a set of 17 goals that were adopted by the United Nations in 2015. The SDGs are a blueprint to achieve a better and more sustainable future for all. Impact investing can play a significant role in helping to achieve the SDGs.

Here are a few examples of how impact investing is being used to achieve the SDGs:

  • SDG 1: No Poverty – Impact investors are investing in companies and projects that are working to create jobs and reduce poverty in developing countries.
  • SDG 2: Zero Hunger – Impact investors are investing in companies and projects that are working to improve food security and nutrition.
  • SDG 3: Good Health and Well-being – Impact investors are investing in companies and projects that are working to improve access to healthcare, develop new medicines and treatments, and prevent diseases.
  • SDG 4: Quality Education – Impact investors are investing in companies and projects that are working to improve access to education, provide quality education, and promote lifelong learning.
  • SDG 5: Gender Equality – Impact investors are investing in companies and projects that are working to promote gender equality and empower women and girls.
  • SDG 6: Clean Water and Sanitation – Impact investors are investing in companies and projects that are working to provide access to clean water and sanitation, and improve water management.
  • SDG 7: Affordable and Clean Energy – Impact investors are investing in companies and projects that are working to develop and deploy affordable and clean energy technologies.
  • SDG 8: Decent Work and Economic Growth – Impact investors are investing in companies and projects that are working to create jobs, promote economic growth, and ensure decent work for all.
  • SDG 9: Industry, Innovation and Infrastructure – Impact investors are investing in companies and projects that are working to develop sustainable infrastructure and industries, and promote innovation.
  • SDG 10: Reduced Inequalities – Impact investors are investing in companies and projects that are working to reduce inequalities within and between countries.
  • SDG 11: Sustainable Cities and Communities – Impact investors are investing in companies and projects that are working to build sustainable cities and communities, and make them more inclusive, safe, resilient and sustainable.
  • SDG 12: Responsible Consumption and Production – Impact investors are investing in companies and projects that are working to promote sustainable consumption and production patterns.
  • SDG 13: Climate Action – Impact investors are investing in companies and projects that are working to mitigate climate change and its impacts.
  • SDG 14: Life Below Water – Impact investors are investing in companies and projects that are working to conserve and sustainably use the oceans, seas and marine resources for sustainable development.
  • SDG 15: Life on Land – Impact investors are investing in companies and projects that are working to protect, restore and sustainably use terrestrial ecosystems, sustainably manage forests, combat desertification, and halt and reverse land degradation and halt biodiversity loss.
  • SDG 16: Peace, Justice and Strong Institutions – Impact investors are investing in companies and projects that are working to promote peaceful and inclusive societies for sustainable development, provide access to justice for all and build effective, accountable and inclusive institutions at all levels.
  • SDG 17: Partnerships for the Goals – Impact investors are working to strengthen the global partnership for sustainable development, revitalise the global partnership for sustainable development and mobilise additional financial resources for development.

Impact investing is a powerful tool that can be used to achieve the Sustainable Development Goals. By investing in companies and projects that are making a positive social and environmental impact, impact investors can help to create a better and more sustainable future for all.

Sources:

https://wwf.medium.com/to-deliver-real-impact-responsible-investors-must-up-their-game-d6d926673974

en.wikipedia.org/wiki/Human_rights_and_development

issuu.com/ja-studio/docs/design-archeology2

en.wikipedia.org/wiki/Artistic_freedom

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Greg Weiss

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Greg Weiss is known as one of Australia’s most experienced recruitment experts and HR consulting professionals. Greg founded Impactful People helping to create a better world, one placement at a time. 

Greg has helped 100s of businesses with their people needs and coached over 1,200 people improve their careers through Soulidify and  Career365.

If your business employees Gen Z and Millennials, then you need to demonstrate your commitment to how you positively impact on the world. You do that by living through ESG values.  If you want to demonstrate real commitment to ESG through recruiting people who can strengthen that capability, then Greg can show you how.