The ESG acronym covers a multitude of areas and factors when used by fund managers. That is why you should know what they mean to ensure that your own “ESG” investments aligns with you own principles. If a fund manager says they consider ESG, it means they have at least carried out additional research to understand the ESG risks presented by the companies they are looking to invest in.
Fund managers use certain terms to describe how they measure “ESG” and knowing what they mean, can help you identify what to look for when investing your own money. Below are a few examples, but do speak with your adviser to find the right investment funds for you.
Ethical investing – Involves choosing investments that avoid dealing with products and services that may be considered harmful or misalign with personal values, such as tobacco, adult entertainment and gambling. Many ethical funds will also screen for a wide range of environmental issues such as deforestation or negative social issues such as low labour standards.
Impact investing –This aims to generate positive, measurable influences on society and/or the environment, alongside a financial return. Some of the areas impact investing might aim to challenge include traditional (ie non-renewable) power generation and gender inequality.
Socially Responsible Investing (SRI) / social responsible investing / responsible investing – It usually means that most environmental, social and governance (ESG) factors and values have been integrated into the investment process. Some examples may include human rights and environmental sustainability.
Sustainable investing – Considers environmental, social and governance (ESG) factors, with a focus on companies seeking to improve wellbeing and have a positive impact on society and the physical environment.
Faith-based investing- Aligns with the principles of certain religious groups. To create these funds, a negative screening process is typically used to rule out any issues that could be deemed unsuitable by religious standards (such as those involved with alcohol production and gambling).
Green & Environmental investing – This typically involves either explicitly focus on improving the environment or avoid those that damage it.