Okay so — Environmental, Social, and Corporate Governance (ESG) investing is now making headlines and all the rage. But wait, is it called Socially Responsibility Investing. What about Impact Investing? Are these are the same thing? I’m confused.
Let’s pause and take a trip down memory lane WAY back. In the early 1900s, ethical investing was used to describe investors utilizing negative screens or deliberately choosing not to invest in companies or industries that did not align with their values. By the time the 1960s rolled around, the new term “Socially Responsible Investing” was started being used. These investments were ethically oriented and used exclusionary screens to invest in companies.
Today, in 2021, we can separate sustainable and impact investing into three types: SRI, ESG and Impact.
The Socially Responsible Investing or SRI we see today is similar to what was used through the 1960’s with the use of exclusionary screens to eliminate companies that earn revenue from what some would deem undesirable industries or business practice(e.g. alcohol, tobacco, guns ect.).
The term ESG investing emerged in the early 2000’s out of an interest to include corporate governance, along with social and environmental factors. The idea of ESG was first coined in 2005 in a landmark study entitled “Who Cares Wins” created by the UN Global Compact. This study laid out how investing in socially responsible companies was not only ethically and morally the right thing, but showed that these factors make good business sense and lead to more sustainable markets and better outcomes for societies.
Impact investing involves investing in companies that are actively trying to have a positive influence on their communities and the world as opposed to simply making existing business practices more sustainable. Although the labels may change they all stand for the same principle — to invest in companies that put an emphasis on Environmental, Social and Governance policies to create a more sustainable company and world for the long term.
Today, ESG investing has matured to a point where it can greatly accelerate market transformation for the better. Until recently, many people assumed that by investing in companies for a moral or ethical reason you would be penalized with your returns. Recent markets have proven this to be wrong.
In 2018, the S&P 500 fell by 7.2% in 9 days, during which period 65% of sustainable equity funds outperformed their peers. Due to this, this market has seen a tremendous increase in popularity in recent years, which has continued through the recent volatility in the market. The value of the market has tripled over the past 8 years to more than 40.5 trillion and now accounts for more than one out of every four dollars under professional management in the US.
The Evolution of ESG investing has grown immensely, and we can expect this to continue throughout the next generation of investors as 85% of millennials have expressed interest in sustainable investing.
Arnie helps continue this evolution by getting you involved in the market by investing in securities that match your values and continue to create a better world for the generations to come. We can help you invest in what you believe in (Impact), divest from what you don’t (SRI), and not be penalized financially at all (ESG). So what are you waiting for? Check out how to get started today at Arnie.