The six ways to differentiate ESG and impact investments
SustainabilityTo avoid the most typical confusion, it is necessary to focus on what these investments prioritize, where they come from and where they are going.
It is common to confuse ESG (Enviromental, Social and Governance) investments and impact investments. Although they have great differences and their origins are very different, even the wisest make the same mistake.
In this note we already tell you why it is important to distinguish them . However, that is not always an easy task. How to do it? Here are six ways ESG investing and impact investing are different:
Framework or strategy
ESG investments look to the past to provide context for understanding how an organization manages the risks and opportunities around sustainability issues. These investments are not used for future trading decisions, but rather to evaluate past activity.
Impact investments, on the other hand, look to the future. One of its basic principles is the explicit objective of generating a social or environmental benefit that can be measured. Their results are metrics, which ultimately hold investors accountable.
Who looks at them?
ESG investments address social and environmental issues, so they require Telegram Number Data discretion on the part of their managers. The problem is that there is no single interpretation of ESG factors or the bottom line, and trust law requires a trustee to act solely in the interest of the beneficiary. If there are benefits for third parties, there is a violation of the law.
Impact investments have it easier. Being a strategy and being independent, investors can opt for these funds knowing the investment intentions of the manager before investing.
Risk or opportunity mitigation
ESG offers two paths:
They help investors exclude or evaluate investments in companies that do not adhere to pre-existing standards.
They provide opportunities to companies with exceptionally high labor standards within a country with typically low labor conditions
In contrast, an impact investor always looks for opportunities, which they arrive at - and then manage - with existing or emerging research that takes into account systematic risks that affect the market as a whole as well as idiosyncratic risks endemic to a particular asset.
Priorities
Where ESG focuses most is on financial performance, because the environmental and social benefits are evaluated after making an investment.
Impact ones, on the other hand, look at everything at the same time: the financial, social and environmental benefits. They even sometimes prioritize social and environmental benefits at the beginning of an investment, as long as the financial returns are positive.
http://zh-cn.btcdatabaseus.com/wp-content/uploads/2023/12/Telegram-Number-Data-1.png
Public or private
ESG-focused investments tend to exist within public markets.
Instead, impact investments have historically been in private markets. However, that place is no longer exclusive: recently, many impact investments have become public.
Not everything that goes around comes
All impact funds are ESG compliant, but not all ESG funds are impact funds. Because impact companies look forward, they often incorporate ESG practices into future investments. ESG, on the other hand, looks back and focuses on what has already happened, making it impossible for them to incorporate impact perspectives.
页:
[1]