Difference Between Socially Responsible Investing and ESG

Socially Responsible Investing is an upgraded version of ESG. It eliminates the investments depending on the guidelines.

ESG stands for Environmental, Social, and Governance. A material impacts performance of the company. It clarifies performance growth by measuring environmental, social, and governance.

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.

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.

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.

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.

Returns are the biggest factor in an investment that matters to every concerned investor. Other various factors determine the return of the investment.

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.

Main Differences Between Socially Responsible Investing and ESG

  1. Socially Responsible Investing is done through SRI mutual funds in the public market, but ESG is only in private markets.
  2. Restrictive screening is an example of SRI, but Toxic water disposal is an example of ESG.
Difference Between Socially Responsible Investing and 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.

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.

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.

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
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