Divesting is the practice of selling shares or bonds in a company due to a fundamental disagreement with its business practices or when the company's outputs are antithetical to the investor's mission or values. This could look like an environmental nonprofit divesting from fossil fuel companies or a health-focused foundation divesting from tobacco and alcohol stocks. Once divested, impact investors can work with investment managers to ensure that those companies are excluded from future investment selections and allocations.
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Responsible investing is an approach to investing that considers both financial returns and the broader social, environmental, and governance impacts of an investment. It generally seeks to promote sustainable practices, reduce harmful impacts, and support initiatives that benefit society. There are several approaches within responsible investing, with ESG investing and thematic impact investing being two common strategies. Often, responsible investing offerings can be facilitated by investment managers and OCIOs.
ESG investing focuses on integrating Environmental, Social, and Governance criteria into investment decisions. ESG investing evaluates how well companies are managing risks and opportunities related to these criteria, which can affect long-term financial performance.
Environmental factors consider a company's impact on natural resources, carbon emissions, waste management, and overall sustainability efforts. Social factors look at relationships with employees, customers, communities, and other stakeholders, including practices around diversity, equity, and community impact. Governance factors assess a company's internal practices and policies, including board composition, executive compensation, and transparency.
Thematic impact investing goes a step beyond ESG by actively seeking investments in companies or projects that have a direct, positive impact on specific social or environmental issues. It aligns with the investor's intent to generate measurable, positive outcomes alongside financial returns.
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Place-based impact investing occurs when those with capital invest in businesses, organizations, companies, and funds that will advance community impact and benefit in a specific geographic area or community. Impact investors can use place-based impact investing at many levels: a country, state, city, town, or even specific neighborhoods. Often, place-based impact investing is a strategy that excites mission-first investors because it is a promising tool for those tackling long-term, systems change work in specific communities.
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