More and more investors are looking for “double bottom line returns” that meet financial goals and advance their personal values where people and the planet are concerned. Socially responsible investing and impact investing are both mission-driven investment strategies, but there are significant differences – semantic and practical – between the two approaches.
What is socially responsible investing?
Also known as sustainable, ethical, or values-based investing, socially responsible investing (SRI) describes investment strategies that integrate social and environmental factors into decision-making. SRI avoids putting money into companies with a negative impact on society or the environment.
So is that a ‘negative screen’?
Yes, SRI investors and fund managers purposefully avoid investments that run counter to their values. Using “negative screens” when analysing opportunities means they exclude firms or industries with adverse effects on the world – alcohol, tobacco, firearms and gambling companies, for example. Steering clear of those sectors is considered a “do no harm” approach.
And what is impact investing?
Similar to SRI, impact investing also takes social and environmental effects into consideration. However, the difference is that impact investments are only made in companies, organisations or funds where the main purpose is to achieve positive impacts, alongside a financial return. The industry has exceeded $500bn in investments to date.
This qualifies as a ‘positive screen’?
Indeed, impact investing goes beyond simply avoiding investments that could cause harm to people and the planet. Impact investors actively want their money to promote a positive social and/or environmental return. For example, they choose companies that have a positive impact on community development, or produce technologies that can lower greenhouse gas emissions.
Do SRI investors primarily seek profit?
Socially responsible investing avoids harmful sectors and firms. However, the goal is still to maximise financial returns. SRI investment managers are legally obligated – with a fiduciary duty – to make decisions that create the highest rates of return. So their clients want to turn a profit in an ethical way.