ESG & impact investing
Factual definition
ESG investing considers environmental, social and governance factors. Impact investing seeks intentional, measurable positive social or environmental impact alongside financial returns.
Their use and implementation vary by investor and mandate.
Distinguish an ESG review from an impact strategy
Hypothetical: an investor assesses a manufacturer’s emissions, labor practices and board oversight alongside financial risks. An impact strategy additionally sets an intended outcome, a measurement approach and a financial-return objective.
ESG review alone does not establish an impact-investing mandate.
State which outcome the number measures
The Global Impact Investing Network describes intentional impact, evidence in investment design and management of impact performance alongside financial returns. The measurement should answer the investment’s stated objective.
A metric that improves on one basis may worsen on another.
Hypothetical example. A factory makes 100,000 units using 1,000,000 kWh in a year, or 10 kWh per unit.
The next year it makes 120,000 comparable units using 1,080,000 kWh, or 9 kWh per unit. Energy intensity improves by 10%, while total energy use rises by 8%.
Neither number alone proves that the factory reduced its total energy use.
If the mandate aims to lower total consumption, report both totals and output rather than substituting the favorable intensity measure. Establish the baseline, measurement boundary, data owner and verification method.
Separately test what the investment contributed to the outcome and whether financial-return objectives were met. An ESG risk assessment can inform this work, but the assessment alone does not establish an impact result.
Where ESG & impact investing fits
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