Socially Responsible Investing (SRI) is exclusionary, meaning that it seeks to exclude companies in controversial industries, such as tobacco, from investor portfolios. In contrast, ESG investing is inclusionary – it seeks to add more companies with high ESG scores relative to their peers. At the same time, many ESG funds continue to ban tobacco, weapons, and gambling. Today the terms SRI and ESG are often used interchangeably.
ESG investing evolved out of SRI, popular in the 1970s. Initially, SRI followed religious principles: SRI funds excluded tobacco, weapons, gambling, and alcohol companies. Some SRI funds divested from companies doing business in South Africa during the apartheid in the 1970s and 1980s.