ESG investing and impact investing sound alike, but they are not the same. One looks at how a company handles risk, and the other aims to create a measurable good result alongside a financial return.
What ESG investing means
ESG stands for environmental, social and governance. ESG investing screens or scores companies on factors such as emissions, worker treatment and board practices. The main goal is usually to understand risk and long term performance.
What impact investing means
Impact investing puts money into companies or projects with a clear goal, such as clean energy access or affordable housing, and tracks the result. The intent is stated up front and results are measured. The Global Impact Investing Network offers definitions and research.
The key difference
ESG asks how the environment and society affect a company. Impact asks what a company does to the environment and society. An ESG fund can hold a large oil company with a good score, while an impact fund looks for a specific outcome.
Why it matters for companies
Companies that report clearly on their emissions and practices are easier for both kinds of investors to understand. Good data helps in either case. Our guide to sustainability reporting shows what that data looks like.
A note on caution
Labels vary and no single standard covers every fund. Read what a fund says it does, check how results are measured and talk to a licensed adviser before making any decision. This article is general information, not investment advice.
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