The first two articles in our series, A Whole Lot Modern: Three Investment Pillars to Embrace Now, introduced investing with an Impact based upon one’s values, and investing with a sensitivity to ESG (Environmental, Social, Governance) concerns. Our discussion in article three: Investments with Impact and ESG will connect the two for investors while identifying important distinctions.
The socially responsible considerations presented previously may seem similar, but they are distinct. For instance, if an investor is interested in intentionally creating an impact in an area about which they care deeply, such as: gender and ethnic parity, saving the rain forest, or affordable housing for all, then the investor likely needs to consider an Impact investment. Such investments have management teams that actively advocate for progress and change. Interested readers may wish to take a few minutes with this video for more understanding about what makes Impact investments unique: Do well and do good and you can do both at the same time.
On the other hand, if an investor chooses investments from a company like Capital Group—introduced in article two—with a commitment to ESG analysis prior to purchasing a company for a mutual fund, then they know that an effort is being made to support progress towards doing less harm—to the environment, to society and with a sharp eye to internal governance that makes this progress possible.
At its core, the distinction an investor needs to recognize is that while an Impact investment is also sensitive to environmental, social and governance concerns, an ESG structure typically does not intentionally advocate for progress or change. And please do not be misled by the name of a mutual fund. One recent example is a fund offered by a leading mutual fund provider, named “Sustainability Fund.” It looked enticing for those wishing to protect the environment. But a few minutes of research later, the fund material revealed that the fund held a number of large, fossil fuel companies the investor would find objectionable.
Perhaps the moral of the story is that, like all investment decisions, thoughtful due diligence is necessary—whether an investor prefers to follow their heart and their values with Impact investing accompanied by advocacy, or is satisfied with ESG investing. We welcome your comments and would love to start a conversation about this vital investment trend! firstname.lastname@example.org