2.2 Impact Investing within the Context of Sustainable and Responsible Investing
While the focus of this report is on impact investing, it is necessary to acknowledge the ways in which investors incorporate impact into their decision-making, often expressed through sustainable and responsible investing approaches. These approaches include:
Exclusionary investment screens (both positive and negative).
Systematic and explicit integration of environmental, social and governance (ESG) factors into traditional financial analysis.
Impact investing which intentionally seeks to create both financial return as well as positive social and/or environment impact that is actively measured.
One way to relate these approaches to one another is to consider them progressively incorporating sustainable and responsible investing themes in a more active fashion. For example, the integration of ESG factors into investment decisions may implicitly reflect a screening for particularly desirable/undesirable industries or geographies. Similarly, impact investments may implicitly reflect ESG factors in addition to the fact that impact investments intentionally target social or environmental outcomes. It should be noted that an investor can utilize any one of these approaches without explicitly engaging in the others. Figure 1 below provides a simplified visualisation of how these approaches fit together.
Figure 1: Sustainable and Responsible Investing Approaches