What’s the difference between values-based, ethical and sustainable investing?

'Good' graffiti

So, what’s the difference between values-based, ethical and sustainable investing? This is our first in a series of blog posts in which we will cover all things related to the rising trend.

There’s a ton of different terms used in relation to the topic. These terms are often interchangeable and can also mean different things to different people, making it no surprise that the jargon is often misused or misunderstood.

To start we’ll be breaking down some of the key terms associated with value-based investing (our preferred term), helping you to navigate through this green maze.

Ethical investing

At its core ethical investing means using one’s ethical principles as the main filter when choosing which companies or sectors to avoid investing in, known as negative screening.

This has since developed to include positive screening in which you choose the companies or sectors to invest in that you believe match your principles, typically promoting and encouraging a positive ethos in some way.

Socially responsible investing (SRI)

Also known as sustainable, responsible & impact investing, SRI involves investing in companies that do good by being considerate of people, communities and the wider environment.

Green investing

Green investing is a form of SRI, generally used in reference to investments made with companies that promote environmentally friendly practices.

Impact investing

Impact investing has the intention of generating measurable and beneficial social or environmental impact alongside a financial return. Usually focusing on a specific theme.

Social impact investing (SII)

Social impact investing is a subset of impact investing, with a focus on using investments to generate social returns as well as financial returns. The UK has the world’s most advanced social impact investment market. These social problems tend to cover health, ageing, homelessness and unemployment.

Values-based investing

This is the term that we use here at Balance: Wealth Planning. For us, it encompasses all the terms above and reflects the values of each investor.

A key part of our role as financial planners is marrying your financial goals with your values. Incorporating your values into our investment philosophy will always be grounded in our evidence-based approach to wealth management. It is our promise to you that we will never compromise on this.

It feels good to do good

The main point to note here is that the six terms above are interchangeable and each of them expresses values. 

They can be used in isolation or mixed in combination. The key idea that ties all these concepts together is a desire to invest in companies that do good, whilst generating financial returns and achieving your overall financial planning goals.

Now that you understand the common terms used when discussing ethical investing, in the next part of our series on ‘Value-Based Investing’, we’ll look at how to define and categorise companies and investments.

If you would like to know more about value-based investing and how we can help, please get in touch and speak to one of our Financial Planners.