This is my 30th year in the field of “screened” investing. Over the last three decades, this approach to investing has been nuanced with many labels. In 1984, Amy Domini and Peter Kinder wrote one of the first books on the subject and called it “Ethical Investing.” In the 1980s and 1990s, the term socially responsible investing (SRI) was most common. When I started our firm in 1982, I expanded the term as socially and environmentally responsible investing because I wanted to give equal weight to social and environment.
It seems every few years there has been yet another label to describe the screened approach: values driven; values based; corporate social responsibility; responsible; socially responsive; socially conscious; environmental, social, corporate governance (ESG); triple bottom line; sustainable; green; and impact investing. Although these terms can be defined differently, in practice they are often used interchangeably, which can certainly cause confusion.
The most common terms used today are SRI, ESG, sustainable, and impact. SRI is often associated with one’s personal values. ESG is more often associated with financial performance derived from ESG screening factors. Sustainable investing often emphasizes the environmental screen; however, it is also widely used interchangeably with SRI and ESG. Impact investing is the latest term and I associate it with community investing, social venture capital, and microfinance. Again, in practice, impact investing is sometimes used interchangeably with SRI and ESG.
The only way to really define these terms is to look closely at the underlying investments and match the investment choice with your specific screened objectives. For example, many mutual funds that fall under the category of SRI, ESG, or sustainable, invest in oil companies, which some people may not consider a sustainable approach.
Carsten is Portfolio 21 Investments' founder and Chairman. He has more than 25 years of experience in socially and environmentally responsible investing.