Impact investing vs sustainable investing vs ESG investing - what are the differences?

Ever wondered what impact investing means? Or what sustainable investing is? Or what the differences are between ESG (Environmental, Social, Governance), values-based, ethical, green, thematic and socially responsible investing?

Confused? Don’t worry! Not even the experts agree on what each exactly means.

I spent nearly 20 years working at one of the largest and oldest financial institutions in New York City and even I can’t figure out what’s the difference between some of these. Honestly, to me they all pretty much mean the same thing.

At Grünfin we like the terms impact or sustainable investing and use them interchangeably. No major reason why we picked these; we just like how they sound.

Changes in mindset: Old way of investing vs New way of investing.

What’s most important is to differentiate between the old and new way of investing.

The old way focused simply on risk and return. In other words, an investor hoped to achieve maximum returns while taking the smallest amounts of risk.

The new way still analyzes risk and return, but adds impact into the mix. In other words, an investor will aim to maximize returns with the lowest amount of risk, while ensuring those investments are doing good things.

Perks of the sustainable impact investing

Sustainability has a tailwind, as exemplified by nearly 200 countries ratifying the Paris Agreement to reduce greenhouse gas emissions to limit global warming and by the EU ensuring women have at least 40% of board seats on large companies.

Global sustainable assets have grown 5x in the last 5 years

So how do we define impact or sustainable investing?

In general terms, we define sustainable investing (or impact investing if you like) as investing in companies that treat the planet and its people with respect.

But more specifically, we focus on three main impact areas:

1. climate,
2. gender equality,
3. health.

This is how we define the impact of each of these.

Climate

Our guiding star for climate is the Paris Agreement (and also SFDR - Sustainable Finance Disclosure Regulation) an international treaty adopted by 196 countries, whose main goal is for the world to reach net zero greenhouse gas emissions by 2050 to limit global warming. This saves our planet.

Your Grünfin climate investments are in companies aligned to or doing better than the goal of the Paris Agreement. This may mean corporations operating factories fully with renewable electricity or companies approaching net-zero emissions across their supply chain years before the 2050 target.

Your investments include sectors like:

• clean energy,
• healthcare,
• consumer goods,
• financials,
• communication services and tech.

Because let’s get real. To save the planet, all industries and the world’s largest companies must step up as part of the solution.

Gender Equality

Your Grünfin gender equality portfolio invests in companies ranking highly on Equileap’s criteria.

This means scoring positively for women in terms of:

• promotions,
• equal pay,
• parental leave,
• flexible working hours,
• sexual harassment,
• human rights,
• safety,
• women empowerment,
• training opportunities,
• corporate board positions,
• management representation,
• and a few more.

Health

The Grünfin health portfolio focuses on companies pushing the boundaries in medical treatment and technology. These companies are working on innovative cures for cancer, migraines, epilepsy, among many other diseases.

Our impact in Grünfin also comes from the cooperation with ShareAction and investor activism.

In conclusion, don’t stress out about the minute differences between all the terms mentioned at the beginning of this article. You can also read more on what’s the actual impact of your Grünfin sustainable investment.

Just ask yourself, am I invested in companies that treat the planet and its people with respect? We’re doing this at Grünfin and are happy to do the work for you!

Learn more about our investment philosophy here.