Ethical investing means choosing investments based on ethical or moral principles. It is a broad term and can encompass Biblically Responsible Investing, but it can also be used to describe the selection of investments for any code of ethics or personal ethical principles. It is often used to reflect ethics pertaining to political and social beliefs and does not always consider the stocks’ investment fundamentals.
Socially Responsible Investing (SRI) involves choosing investments based on their social impact. Often, SRI is heavily influenced by the politics or social norms that are predominant at the time. While there can be some commonality with ethical investing, Socially Responsible Investing is generally focused on social justice, environmental advocacy and concerns, community investing, clean technology and alternative energy. Some consider it to be synonymous with ESG investing.
Values-based investing is typically used to indicate an investing philosophy that is consistent with an individual’s moral values. It can encompass faith-based investing, but can also refer to values like environmental or social concerns. It should not be confused with “value investing,” which refers to investing based on the current or projected financial value of a security.
Impact Investing is investing in companies based on their ability to effect some type of social or environmental change. It is a broader term and seeks social impact while also seeking profit. Impact investing looks to serve society or to be involved in a positive effect on society. Socially Responsible Investing (SRI) and Environmental, Social and Governance Investing (ESG) are two prominent types of impact investing.
Corporate Social Responsibility (CSR) or Corporate Citizenship are two terms to describe a company’s efforts to provide a benefit to society beyond producing goods or services. It can involve philanthropy, volunteering, employee engagement, ethical standards, and environmental concerns. It typically does not involve investing, but represents a company’s self-generated activities. It is distinct from Socially Responsible Investing.
Environmental, Social, and Governance Investing (ESG) is a metric used by certain socially conscious investors to evaluate a company’s impact when considering an investment. Environment pertains to a company’s responsibility toward nature or the environment. The Social aspect is community focused and involves the company’s interactions with its community, customers, suppliers, and employees. The Governance element of ESG deals with internal management/leadership (including executive compensation, internal controls, and audits) and shareholder relations. Depending on the situation, there can be overlap with Impact Investing, Sustainable Investing, or Socially Responsible Investing, and sometimes Biblically Responsible Investing is included under this grouping. ESG Investing is currently undergoing rapid change and development in its scope and definition.
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