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What is the Difference Between SRI and ESG

1 Mins 16 Apr 2024 0 COMMENT
difference between esg and sri investing

 

To arrive at a universe of stocks for investing, many different types of filters or criteria can be used. Among the many criteria, ESG (environmental, social and governance) parameters have gained wide prominence in many advanced economies and are gaining traction even in India.

Another style of investing is using the ethical angle. But ethical investing is not the same as ESG style. Ethical investing is more moralistic, and principles based. It means certain ‘sin’ industries are altogether excluded from the investment universe.

What is ESG Investing?

Environment, social, and governance investing is a strategy to invest in companies that either reduce their negative impact on society, contribute to societal betterment or both. If you invest in a fund that exclusively buys companies with green practices, is socially responsible, and has strong governance principles, you are following ESG investing. Read more about ESG funding

What is SRI or Ethical Investing?

Socially responsible investing is an investment strategy that considers how your values align with a company’s values. It works by exclusion rather than screening companies that have certain practices. For instance, you may refrain from investing in sin companies; such as those that manufacture alcohol, tobacco, weapons, gambling, etc. You may also choose to not invest in fossil fuel companies altogether. SRI investing is one of the simplest and least expensive forms of social value-based investing.

What is the difference between ESG and SRI Investing?

ESG Investing

SRI or Ethical Investing

ESG considers companies based on their positive or negative social impact

SRI investing considers companies that align to their respective moral value or objective

It is a three-factor based investing- Environmental, Social and Governance

No predefined factors are included while considering a company for investment

ESG metrics are used to determine the company for investment purposes

No scores are considered for investment purposes

Which investment strategy should you choose?

Choosing the right strategy for your investment portfolio comes down to understanding how you want to invest. Do you want to invest in companies that actively give back to society? Or do you have certain moral principles that you would not give up in your financial portfolio?

If you value the environment, social causes, and governance of a company, you should opt for ESG investing. If you have strong moral principles and do not mind foregoing the returns from particular investments, then SRI investing is the way for you.

Conclusion

Social value-based investing, either through ESG investing or SRI investing, is a noble investment strategy to consider. However, before you invest, be careful to thoroughly analyze the funds or companies you choose to invest in. It might be prudent to get a financial advisor or a digital platform well-versed with social value-based investing to help you.