Sustainable investing has reached a new level of mainstream acceptance. As of early 2024, $6.5 trillion in U.S. assets are invested using some form of sustainable strategy. Yet even among sophisticated investors, there’s persistent confusion about the difference between “ESG” and “impact investing.” Understanding this distinction is more than semantics—it’s essential when allocating capital to sectors like utility-scale solar, where opportunities can address both ESG risk and measurable climate impact.

What ESG Really Means

At its core, ESG investing—short for Environmental, Social, and Governance—focuses on integrating key sustainability factors into the traditional risk-return framework. The CFA Institute’s definitions of responsible investment approaches formalized ESG as a risk lens that investors can apply to evaluate how non-financial factors may affect financial performance.

Materiality is central to ESG. Organizations like the Sustainability Accounting Standards Board (SASB) have developed industry-specific frameworks—77 sector standards in total—to help issuers identify and report on sustainability issues that could materially impact their finances. And since March 2024, the SEC’s climate-risk disclosure rule has required U.S. public companies to report emissions and climate-related risks, establishing a regulatory backbone that elevates ESG from optional to expected. ESG integration’s primary goal is straightforward: achieve competitive financial returns while mitigating long-term environmental, social, and governance risks.

How Impact Investing Differs

Where ESG is about incorporating sustainability into risk assessment, impact investing is about deploying capital with the explicit intention of creating measurable, positive outcomes. The Global Impact Investing Network (GIIN) defines it as investments made with the intent to generate social or environmental benefits alongside a financial return.

The scale of the impact investing market underscores its momentum: $1.57 trillion in assets as of 2024, growing at over 20% annually since 2019. Measuring impact requires different tools from ESG: frameworks like IRIS+ and the “Five Dimensions of Impact” (What, Who, How Much, Contribution, and Risk) help investors define, measure, and communicate their outcomes. While some impact funds accept concessionary returns to prioritize mission, many now target market-competitive returns, particularly in sectors like renewable energy, where economic fundamentals align with social benefit.

Distinguishing ESG and Impact Investing

While ESG integration and impact investing are often conflated, their core differences can be summarized in three critical areas: intentionality, measurement, and capital flow.

1. ESG strategies primarily seek to optimize risk-adjusted returns by accounting for sustainability risks, whereas impact investing aims for intentional, additional outcomes—solving problems like decarbonization or energy access.
   
2. ESG relies on materiality assessments, ratings, and disclosure standards such as Sustainability Accounting Standards Board (SASB) or services like MSCI and Sustainalytics. In contrast, impact investments depend on outcome-based metrics using systems like IRIS+, theories of change, and third-party verification of additionality.
   
3. ESG capital typically flows into public equities and fixed income, integrating broad-market exposure, while impact investments are concentrated in private markets, thematic funds, and catalytic capital targeting specific social or environmental goals.
   

For example, an ESG-screened ETF may exclude coal producers but doesn’t fund clean energy directly. Meanwhile, a utility-scale solar fund that builds new capacity reduces emissions and delivers measurable impact—qualifying as an impact investment.

Where ESG and Impact Overlap

Despite their differences, ESG integration and impact investing exist on a continuum of responsible investing, and increasingly, asset managers blend both approaches in a single strategy. For example, a public equity ESG fund might add an “impact sleeve” funding targeted renewable energy projects, or a private equity vehicle might align portfolio company disclosures with SASB while pursuing intentional impact metrics.

Utility-scale solar exemplifies this convergence. Investing in shovel-ready solar projects both satisfies ESG materiality criteria by addressing environmental risks tied to carbon emissions—and meets impact goals by generating megawatts of new clean power, avoiding tons of CO₂, and benefiting local communities through tax revenue and jobs.

Controversies and Challenges

Responsible investing is not without hurdles. Greenwashing, when funds overstate their ESG or impact credentials, remains a top concern, especially given inconsistent ESG ratings between agencies. Meanwhile, the term “ESG” itself has become politicized in the U.S., with several states filing lawsuits alleging antitrust violations against major asset managers for coordinating on net-zero goals. This climate has prompted some companies to tone down ESG language in public materials.

On the impact side, proving additionality, showing that an investment directly causes new positive outcomes, can be complex and data-intensive. Without standardized methods for verifying causality, stakeholders risk “impact-washing,” where claimed benefits lack substance. The solution? Clear definitions, transparent metrics, and credible third-party verification are critical to maintaining integrity.

Case Studies in ESG and Impact

CalPERS Sustainable Investments 2030 Goal provides a compelling example of ESG integration at scale. Managing a $483 billion portfolio, CalPERS incorporates SASB metrics to mitigate climate and governance risks, demonstrating how even large asset owners can systematically integrate ESG across their holdings.

By contrast, Shasta Power Fund II demonstrates intentional impact investing by focusing on originating and preparing utility-scale solar projects. Shasta secures land, completes site assessments, advances permitting, navigates interconnection agreements, and works to secure power purchase agreements (PPAs). Once projects are fully prepared and shovel-ready, Shasta sells them to independent power producers who handle construction and long-term operation.

This model enables Shasta to deliver measurable outcomes—such as avoided CO₂ emissions and community economic benefits—while aligning with ESG standards and providing investors exposure to the early, high-value stages of the clean energy pipeline.

A Practical Guide for Investors

For those considering either strategy, five steps can help ensure clarity and confidence:

1. Clarify your intent: Are you focused on risk mitigation (ESG) or seeking direct, measurable outcomes (impact)?
   
2. Demand clear metrics: Insist on SASB-aligned disclosures for ESG investments and IRIS+ or SDG-linked KPIs for impact strategies.
   
3. Verify additionality: Seek third-party evaluations or independent engineering reports, especially common in solar project finance.
   
4. Understand controversy exposure: Assess regulatory and political risks that may affect ESG-labeled products.
   
5. Choose transparent partners: Funds like Shasta Power, which publish both financial and impact reports, provide clearer accountability.
   

Conclusion: The Power of Doing Both

ESG and impact investing aren’t opposing philosophies—they’re complementary. ESG helps investors mitigate downside risk by integrating sustainability considerations into decision-making, while impact investing seeks to generate direct, intentional benefits. In utility-scale solar, these strategies come together: projects reduce emissions and deliver market-aligned returns, offering a rare intersection of material ESG factors and measurable positive outcomes.

Ready to position your capital at this powerful intersection of ESG and impact? Sign up for our Shasta Power Fund II Waitlist and join the movement!