August 25, 2023
ESG, SRI, and Impact Investing: What Accredited Investors Should Know
Do you want to invest in companies that are conscious of their impact on environment, social, and governance issues? If so, you should look for ESG, SRI, and Impact investing portfolios. In this blog post, we’ll look at how they are different and what you should know about each one. What are the key differences …
Do you want to invest in companies that are conscious of their impact on environment, social, and governance issues? If so, you should look for ESG, SRI, and Impact investing portfolios. In this blog post, we’ll look at how they are different and what you should know about each one.
What are the key differences between SRI, ESG, and Impact Investing?
The terms SRI, ESG, and Impact Investing are often used interchangeably, assuming they all mean the same thing. However, don’t be confused! There are actually small differences in each one.
The acronym ESG stands for environmental, social and governance.
ESG portfolios are composed of companies that are rated for their approach to environmental, social, and governance issues. A third party sets the ratings, and different companies may rank in one of the categories and not the others.
Another thing to note is that ESG investing is based on a wider range of factors than Impact Investing or SRI.
Companies are rated for their impact on the environment in things such as renewable energy, animal welfare, and the reduction of CO2 emissions.
Social factors are another way companies are rated, prioritizing things like the social responsibility of corporations, their support of the local community, and data security.
Companies are also rated according to how they govern themselves in things such as their anti-corruption policies, the diversity of their board, and code of ethics for themselves and their employees.
The abbreviation SRI, which stands for Socially Responsible Investing, represents one single category. It prioritizes caring for both social and environmental factors, such as investing in a company that directly benefits a community. SRI investing typically emphasizes social factors more heavily than ESG or Impact Investing.
Finally, Impact Investing is designed to help an organization or business produce a particular positive social impact. It typically focuses more on delivering positive social or environmental impacts than either ESG or SRI investing.
How do ESG, SRI, and Impact Portfolios perform?
According to a 2020 study by Scientific Research, SRI funds perform just as well as traditional types of investments. ESG and Impact Investment portfolios have the same performance. In fact, some studies have even indicated that ESG investments have an even more successful return than conventional investment portfolios.
ESG, SRI, and Impact investment funds are also rapidly growing. From 2012 to 2021, the number of operating ESG funds more than triple, –holding $2.7 trillion in 202. A study produced in 2019 showed that sustainable funds were consistently less risky than conventional investment funds.
What are the benefits?
Sustainable investment funds such as ESG, SRI, and Impact funds assist conscious investors in reaching their goals while simultaneously positively impacting the environment and their communities.
These types of investment funds can help with portfolio diversification and reduce the risk of investing by making it much less likely that a fund will end up with a bad reputation and negatively affect you financially. Most importantly, these types of investment funds can help you put your money into things you actually care about and toward a better future.
What are the risks?
These investment strategies can occasionally lead to higher costs and lower returns because of the expertise needed for their success. The main risk in these types of funds is the fact that companies may not measure up to the standards of investors in their impact on various issues.
Who should invest in these portfolios?
If you care about more than just money, these types of funds are for you.
They are built for investors committed to a better planet and future as their legacy and want to make sure they put their investments into what they care most about.
How do you invest in ESG, SRI, and Impact portfolios?
Most ETF and Mutual Fund portfolios include options for ESG investing, such as Charles Schwab and Vanguard.
However, private funds such as Shasta Power’s Summit Power Fund focus heavily on these issues by continuing to develop solar energy and making a huge impact on reducing carbon emissions.
Make an impact with Shasta Power
If you want to put your money into things you care about, consider investing with Shasta Power! Click here to watch a free webinar from Shasta Power partners Max and John to learn more about renewable energy and why it is an impactful place to put your investment funds.