ESG VS IMPACT
Environmental, social, and governance (ESG) investment is an investment approach that identifies non-financial risks which may have a material impact on an asset’s value. It is not a standalone strategy, but rather is part of an investment assessment process that is used alongside traditional financial analysis.
The main approaches of ESG investing include: Screening, ESG Integration, Voting & Engagement and Thematic & Impact investing.
Impact investing goes beyond ESG investment in that investors look further into a company’s intentionality. Per the GIIN's definition, these are investments made with the intention to generate positive, measurable social and environmental impact alongside a financial return. Impact investing is usually associated with direct investments, such as private equity, private debt and real assets.
With enabling factors such as financial innovation like blended finance structures, technological innovation, the rising caliber of impact entrepreneurs and the advancement of impact measurement standards, we have seen compelling impact investments (with financial returns that are comparable to a conventional investment) in the financial inclusion, healthcare, climate sectors to name a few.