There has been an explosion of interest in sustainable and responsible investing in the past few years. And even though higher interest rates have tempered demand and the share prices of related stocks, the trend towards investors adding ethical slants has not gone away.
However, there are subtle differences between the different types of investing marketed by fund managers and Isa providers. The main one, ESG, which stands for environmental, social and governance, focuses on companies that follow positive ESG principles. It is typically directed at meeting compliance requirements or used as a tool for managing investment risk.
Then there is ethical investing, which excludes stocks based on an investor or a fund manager’s prescriptions, such as not investing in tobacco stocks, or defence companies, even if the investment case is valid. Impact investing embodies an investment philosophy that gives positive, measurable social and environmental impact equivalence to a financial return. In turn, the money is invested to address the world’s most pressing challenges.