Difference Between Socially Responsible Investing and ESG (With Table)

Investing just does not means that it should return profits to the investors. It should have an impact on society and bring change at a larger aspect. Investors always look forward to profitable stocks or funds. The return should be profitable so that the investors get a return at a profit margin.

Socially Responsible Investing vs ESG

The difference between Socially Responsible Investing and ESG is Socially Responsible Investing depends upon how the individual chooses investments according to some guidelines, whereas ESG depends on the company’s background depending on more financial background. It also takes care of every social and environmental measure. Socially Responsible Investing uses ESG factors for taking a rough view of the investment.

Socially Responsible Investing is an upgraded version of ESG. It eliminates the investments depending on the guidelines. Socially Responsible Investing uses ESG factors to determine positive and negative aspects of an investment. Its motto is all based on personal values. A person who does socially responsible investing always wants profitable returns but does not wants to violate someone’s conscience.

ESG stands for Environmental, Social, and Governance. A material impacts performance of the company. It clarifies performance growth by measuring environmental, social, and governance. It also marks the impact of the company socially. Climate change is the biggest factor nowadays. This investment is also carried on sustainability issues.

Comparison Table Between Socially Responsible Investing and ESG

Parameter of ComparisonSocially Responsible InvestingESG
MethodsShareholder ActivismPositive Selection, Exclusion, Integration
Type of InvestorsPublicPrivate
Risk IndicationNoYes
FactorsNoEnvironmental, Social, Corporate
ProcessMutual fundsESG factors
ExampleRestrictive ScreeningToxic Water Disposal

What is Socially Responsible Investing?

Socially Responsible Investing takes care of profits and good environmental background, which can lead to good changes in society. It is known by many more names. They are Green, Ethical Investing, Responsible Investing, or Sustainable Investing. It contains a very small percentage of total funds.

It is a method to avoid risks for ESG risks. It also decides whether a company should be present in the investment portfolio. This market is growing rapidly in Europe and the US. Pension funds act as a major influence on investment.

It needs constant socially conscious investing. This investment can be done through a mutual fund or can be through an exchange-traded fund.

Their motto is financial gain and social impact. It always not necessary that if a company is always giving profits will continue after you invest in it, but the financial background should be read before investing in a company.

Social value is a big aspect that adds a great impact to any investment in any company. Social value can fall anytime, which adds an unexpected risk that can occur anytime. This type of investing is considered through ESG factors so that investment is detailed and can be secured from every factor. This investing always focuses on those companies that have a good impact on the environment and society.

What is ESG?

ESG is Environmental, social and corporate governance. These are the major three factors that are used to measure the profit of the investment. It measures the sustainability of the investment in a company. It also measures the impacts of an investment in a company. These factors are very helpful to determine the profits of the investment.

Returns are the biggest factor in an investment that matters to every concerned investor. Other various factors determine the return of the investment. This is a responsible investment. It uses various methods to choose the company for investment with good profitable returns.

The various methods are activism, positive selection, engagement, consulting role, integration, and exclusion. Positive selection is made through either keeping criteria or looking for high performance. ESG compliant companies are prescribed more for inclusion.

Secondly, the other method is activism. This is a process where voting is done in a particular group of shareholders so that the majority can come up with a change in the strategy of the company. 

Consulting role is also a method and most commonly referred to as quiet diplomacy. Shareholders and investors of big companies join together and discuss the risks of the company in daily meetings. This is how they act as a protection system.

Main Differences Between Socially Responsible Investing and ESG

  1. Socially Responsible Investing Investors use shareholder activism and various other methods, but ESG has exclusion, integration.
  2. Socially Responsible Investing is easily used by various investors, but ESG is used in private market investors.
  3. Socially Responsible Investing does not show the risk, but ESG indicates risk in the financial investment.
  4. Socially Responsible Investing does not have any such factors, but ESG has some factors, not only the assumption of risks.
  5. Socially Responsible Investing is done through SRI mutual funds in the public market, but ESG is only in private markets.
  6. Restrictive screening is an example of SRI, but Toxic water disposal is an example of ESG.

Conclusion

Socially Responsible Investing and ESG are both ways of investing. It depends on the person how the person wants investment to be made. Both of them are quite different from each other and have numerous factors which impact profits from an investment.

People always look for returns from an investment, and investment does mean good returns. This stands as a future fund. ESG depends on companies’ environmental, social, and governance factors. The factors are important because they not only financial profile is important but various other factors which can seize a good investment. Big companies hold meetings with the shareholders and investors and discuss various risks a company can run into.

ESG is a responsible investment. SRI does not have any such factors, but ESG has some factors, not only the assumption of risks. It also measures the impacts of an investment in a company. These factors are very helpful to determine the profits of the investment. They are Green, Ethical Investing, Responsible Investing, or Sustainable Investing.

This market is growing rapidly in Europe, and US. financial background should be read before investing in a company. This type of investing is considered through ESG factors so that investment is detailed and can be noticed the ups and downs of every company under their investing.

References

  1. https://link.springer.com/article/10.1007/s10551-008-9956-0
  2. https://www.tandfonline.com/doi/abs/10.2469/faj.v74.n3.2
x
2D vs 3D