Impact investing vs. socially responsible investing

1. Impact investing vs. socially responsible investing Every new investor is often confused about the right companies to invest in and the right strategy to adopt. While financial gains are the primary goal of any investment, investors are now getting conscious of the social impact of their investments as well. Among the different strategies that investors use to build and diversify their portfolios, sustainable investing is causing the most ripples in the space. This emerging trend is revolutionising the way businesses and investors approach investments. It is also urging organisations to adopt a more sustainable approach to their business operations. What does it mean to invest sustainably? Decades ago, John Wesley, founder of the Methodist movement, termed stocks that invest in gambling, weapons, tobacco, alcohol, etc., as ‘sin stocks’, and urged his followers to not invest in them. In the first instance, this approach may seem foolish to you. But think about it, your investment is nurturing these companies. Isn’t it a good way to make the world a better place by refusing to invest in unethical brands and products? Sustainable investing involves a thorough assessment of the environmental, social, and corporate governance aspects of an organization. Your investment

2. decision shall then majorly depend on these aspects because the goal is to create a positive social impact. Fulfilling corporate social responsibility and realizing long-term financial gains are also the intended outcomes of such a strategy from the company’s point of view. It is also often termed the values- based investing approach. There are three main strategies under the values-based investing approach. They are: ESG investing Socially responsible investing (SRI) Impact investing ESG is an abbreviation for environmental, social, and governance aspects related to any investment. These ESG factors are considered besides the conventional financial analysis tools. The goal of the exercise is to assess risks and opportunities beyond those found in technical assessments. This approach has some social consciousness associated, but the primary focus is profitability. To get more details on ESG funds, read our article on what are ESG Funds And How To Invest In The Best One on the Teji Mandi blog. In this article, our focus is on the other two elements of the values-based investing approach, namely, impact investing and socially responsible investing. These terms are often confused with each other or used interchangeably. This article is aimed at helping you understand how the two forms of investing differ from each other. Let us start by understanding what socially responsible investing is. Read More about Impact investing vs. socially responsible investing