ESG investment is often used interchangeably with sustainable investment, socially responsible investment (SRI), mission-related investment and impact investment.
Simply put, it is when investors take social and/or environmental factors into account when evaluating investment opportunities. An ESG investment is therefore one made into a business which has a socially-responsible mission as well as being profit-driven.
Strictly speaking, ESG investment refers to the consideration of Environmental, Social and Governance factors in the evaluation of a business opportunity. ESG metrics can usually be provided by third parties who report on companies and provide ESG ratings for investors.
ESG investors are becoming increasingly apparent as people want their capital to make a valuable difference to the world in addition to generating strong financial returns. In the sense then, they are no different from SRI or Impact investors – ESG just provides a more tangible metric for use in their evaluation.
The existence of ESG metrics allows entrepreneurs to focus their businesses more clearly on ESG objectives which can boost their ESG rating and ingratiate them to ESG investors.
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