This article is part one of a three-part series on ethical investing. If you missed out on Part one, you can find it here.

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By now, we’ve got a solid grasp of what ethical investing is and both its advantages and challenges. 

But the world of ethical investing has a lot of new words to grasp.

When you first get introduced to ethical investing, it’s a lot like trying to read a new fantasy novel.

There’s a bunch of new names, they all sound pretty similar, and there’s a new language to learn.

But instead of trying to keep track of who’s the knight, who’s the wizard, and which one of them is evil, you’re trying to work out what all the jargon in the ethical investing world means.

Ethical investing is a newbie player in the investing world and the definitions around it are still being established.

You can think of ‘ethical investing’ as an umbrella term that essentially means investing your money in alignment with your ethics, values, and moral code.

But sometimes, people use a mix of ‘ethical investing’ words interchangeably. Let’s break down the difference so you can talk the talk (and then walk the walk!).

ESG investing

ESG stands for Environment, Social, and (corporate) Governance and looks at those three criteria as well as financial returns to evaluate how well a stock is performing.

ESG investing is defined by specific standards and rating systems that are used to evaluate the company. The most commonly referred ESG rating system is the MSCI ESG score.

This arguably the most well-defined form of ethical investing - but even then - some companies ‘greenwash’ their credentials.

Socially responsible investing

Socially responsible investing assumes that companies have a responsibility to the world and their customers, and shouldn’t be doing anything that creates harm.

So if you’re a socially responsible investor, you’ll avoid investing in companies that profit from some kind of harm, eg. low standards for labour working conditions, or tobacco companies.

If you see the words ‘socially responsible’ or ‘ethical’ on any investing funds or websites of companies, they’ll likely have their own standard for conducting business ethically.

You might need to do some digging to see what those standards actually are and if they align with your values.

Sustainable investing

This one’s also called green investing, and focuses on companies that aim to protect and preserve the environment through the way they do business.

Think sustainable waste management, using recycled materials, using or creating alternate energy sources, using locally sourced materials etc.

‍Impact investing

Impact investing overlaps a bit with other forms of ethical investing like socially responsible and ethical investing.

But it goes a couple of steps further by actually investing in e companies and funds that exist to benefit the planet.

It’s not just looking at negative impact ie. what bad stuff is a company NOT doing, but also how are they making the planet a better place.

Think not-for-profit education or healthcare companies or social enterprises.

Knowing how these different forms of investing differ from one another means that you can look out for these words in company reports and fund reports when you’re making your investment decisions.

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Stay tuned for part three of this series on How To Get Started With Ethical Investing.