Impact investing is often conflated with sustainable and environmental, social and governance (ESG) disciplines. Yet it’s quite distinct. We spoke with Eric Rice, an active equity portfolio manager and impact investing pioneer, to learn more.
What is impacting investing?
Impact investments have a dual mandate: They seek to generate positive, measurable social and environmental impact alongside a financial return. Impact investing comes with a specific intention and necessitates that investments be managed toward that intention. We like to say impact companies are looking to solve the world’s greatest problems.
How does impact differ from ESG investing?
ESG is about how a company any company operates. Is it good to its environment? Is it good to its stakeholders? Does it have good governance? Any company, no matter its business, can be a great ESG company.
An impact company, in contrast, is specifically making goods and services aimed at solving important environmental and social problems. Whereas ESG is about how companies go about doing what they do, impact investing is about what they do.
What types of problems are impact companies aiming to solve?
A key guide for impact investing is the United Nations Sustainable Development Goals (UN SDGs). Some of the problems they seek to tackle are poverty, hunger, education, inequality, clean water and sanitation, clean energy, climate action and more. We look not to the 17 UN SDGs, the goals, but to the SDG targets, of which there are 169. We believe these reveal where the problems really are.