What is the difference between ESG, SRI, and impact investing?

ESG investing evolved out of Socially Responsible Investing (SRI), popular in the 1970s. Initially, SRI followed religious principles. SRI funds excluded tobacco, weapons, gambling, and alcohol companies. Some SRI funds boycotted companies doing business in South Africa during the apartheid in the 1970s and 1980s.

SRI is exclusionary, meaning that it seeks to exclude companies in controversial industries, such as tobacco. In contrast, ESG investing is inclusionary: it seeks to add more companies that have 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.

Impact investing aims to generate measurable outcomes through direct investments. It often takes the form of venture capital or private equity.