Impact Investing vs ESG: Understanding the Differences

Environmental, Social, and Governance (ESG) investing (AKA Sustainable investing) and impact investing are two growing trends in the investment world that focus on creating positive change through investment. While both approaches aim to promote positive social and environmental outcomes, they differ in their focus and approach.

ESG investing seeks to integrate ESG factors into investment decision-making and goes beyond traditional financial analysis to consider the impact of investments on society and the environment. ESG investing can take many forms, ranging from exclusionary screens that avoid investments in companies involved in controversial practices, to positive screens that actively seek out companies with strong ESG practices.

Impact investing, on the other hand, is a type of ESG investing that focuses specifically on investments that have the potential to generate both financial returns and positive social and environmental impact. As with ESG investing, impact investing also takes many forms, including investments in companies that are developing solutions to specific sustainability challenges, such as clean energy or sustainable agriculture or investments into societal challenges, such as financial inclusion or women empowerment.

It is important to note that impact investing is a subset of ESG investing. All impact investments are ESG investments, but not all ESG investments are impact investments. The key difference is that impact investments focus specifically on investments that have the potential to generate both financial returns and positive social and environmental impact, while ESG investments seek to integrate ESG factors into investment decision-making more broadly. For example, ESG integration may focus on risk management of an investment portfolio as opposed to driving underlying change in the economy.

At Fire Capital Management, we believe that impact is specific to the institution or individual, and is an intentional decision based on their personal values. For individuals, families, and foundations who are seeking to align their investments with their mission and purpose, impact investing may be a particularly attractive option. By focusing specifically on investments that have the potential to generate both financial returns and positive social and environmental impact, impact investing allows these investors to create a more meaningful impact and make a difference in the world while still generating financial return. Whether you are interested in ESG investing or impact investing, it is important to work with a trusted advisor who can help you understand the differences between these approaches and choose the right one for your needs.

Impact is our ethos: At Fire Capital Management, we seek out opportunities that provide both financial and social returns. We’ll work with you to develop an impact strategy to help you focus your giving on the causes that you care about and to build your legacy, from the way you invest to the way you give.
Get started on making the impact that's important to you.
Looking for more detail on Sustainable and Impact Investing terminology? View our ESG Investing Definition Glossary.
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