While investing in any company, an investor mostly considers one point and that is to earn higher returns in the amount invested in it. Investors invest funds in order to see the value increase of the funds. The money earned through such investment can be multiple like retirement savings or supplementing the current income. However, now is the era when it is high time for the investor to go beyond the commercial enterprise and then work to make the world a better place.
Interestingly, it is possible to leverage the investment to bring positive changes in society and investors who work with this in mind are social conscious investors who in addition to earning higher returns, also leave a positive footprint. The different types of investments that one might consider for positive footprints are ESG, SRI, Green and Sustainable Investing. However, before walking down on this path, it is important to understand the difference between the four.
Socially Responsible Investing
SRI or Socially Responsible Investing is an investment strategy that focuses on maximizing financial return alongside advancing the cause, belief and idea that they believe. Such investments are possible in mutual funds, ETFs and corporations. This type of investment was started back in 1758 by the Religious Society of Friends. The basic idea behind such investment was to ensure that different business practices do not harm anyone like the health of the workers and anything like rivers that suffer from water pollution due to the chemical released by different industries. SRI investors ensure that the businesses in which they are investing practice moral ground and work by considering consumer protection, environmental stewardship, gender diversity, racial diversity and human rights. The return on such investment can be high just like winning a Lottery Sambad. Most socially responsible investors don’t invest with businesses that have negative social effects.
Environmental, Social and Governance (ESG) Investment
The three pillars on which ESG investment relies are environment, society and governance. Different environmental issues which are considered during ESG investment include climate risk, pollution and carbon management. The social issues which are taken care of include worker safety, human rights, diversity, inclusion and customer data protection. Diversity and inclusion play a huge role and no discrimination is supported when an investor makes such an investment. It is similar to applying for a lottery-like Teer Result which can be purchased by all without discrimination. Governance issues that are included are anti-competitive behaviour, accounting standards compliance and succession planning. The performance of the company is then based on the insights gained by the ESG data and metrics. The bottom line of ESG investing is to manage the company well through investments.
Sustainable investing has become a blanket investment term that focuses on the investment being made in a company that is trying to do better for economic growth, social progress and environmental protection. Sometimes, sustainable investing is also summed up as people, planet and profits. The capital drawn from sustainable planning is used to fight environmental destruction and climate risk and focuses on corporate responsibility. Sustainable investment combines approaches of traditional investment with the insights acquired by ESG to meet the investment goals. A 2020 report by the US FIF Foundation indicated that the current sustainable investing asset is $17.1 trillion.
Green Investing is sometimes also known as eco-investing. In this investment, the investors invest money when the enterprise is eco-friendly. Different ways a company can be made eco-friendly include implementation of green policies, policies implementing conservation, development of renewable energy sources and further educating the masses about the green initiatives. Green investing is treated as a subset of socially responsible investing or SRI. These investments are made when investors want to support an endeavour that aligns with their personal belief systems like social justice and sustainability and it can also be termed as impact investing. One of the most important parameters of this kind of investing is climate change. Green investment is now available all across the globe as consumer demand has shown its importance.
It is important to realize that profit and sustainability can co-exist and one does not need to let go of the profit to become sustainable. In fact, a report by Morgan Stanley has indicated that sustainable equity funds have, in fact, outperformed traditional funds by 2.8 percent which has increased the hope for more sustainable investment for different companies.