Is it Responsible, ESG, Impact, or Sustainable Investing?

Our client, one of the largest alternative asset managers in Latin America, has built its reputation and earned prestige by excelling in a simple idea: making investments in Latin America attractive to investors around the world. Over 30 years, they have deployed more than $50 billion across multiple portfolios such as Agribusinesses, Foods and Beverages, Healthcare, Toll Roads, Energy, and Retail. Leveraging private equity capital, investees were able to make crops more productive and resilient, innovate in food production and the value chain, expand access to healthcare services in remote areas, improve connectivity and infrastructure, and enhance trade for local and international brands. Undoubtedly, these sectors play a pivotal role in the sustainable development of countries like Brazil, Chile, and Colombia.

Our client and its stakeholders rapidly acknowledged the impact of these investments, yet they remained committed to their investment thesis and were cautious of being labeled as an impact investing firm. Nonetheless, they recognized the importance of comprehending, quantifying, and communicating this impact for fostering innovation. Thus, our Sustainable Investing Research Consultancy Project aimed to support our client in understanding why asset manager should assess their impact at a portfolio level. Consequently, our task was to construct a compelling narrative to enlighten the pathway of integrating broader considerations into their investments, beyond financial metrics.

In delving into this endeavor, we encountered a challenge: what to call this integration of broader visions into investment practices. Is it Responsible, ESG, Impact, or Sustainable Investing? This reflection made me realize that success and the devil are in the details; therefore, details shouldn’t be overlooked. Then, I wanted to share some clarifications of these terms to avoid misunderstandings and help us build more accurate narratives according to our scope of work in the sustainable investing field.

• Responsible Investing is a broad concept that actively includes ethical considerations within investments. According to the CFA Institute, this approach intends to avoid investing in companies that have negative impacts on the environment or society, 
• ESG Investing involves specifically environmental, social, and governance risks and opportunities in investment strategies. According to the Harvard Business Review, this approach is commonly used to assess how ESG considerations can have material impacts on companies' performance, besides the financial aspect. 
• Impact investing is an investing that seeks to generate measurable social or environmental impact alongside a financial return, according to The Global Impact Investing Network (GIIN). This concept is interchangeable with Sustainable Investing, following the Morgan Stanley Institute regarding the behavior of Impact investors who vary in their financial return expectations, with some seeking market-rate returns while others may accept below-market returns in pursuit of maximizing impact.

All three approaches shed light on a shift towards integrating nonfinancial factors into investment analysis, representing an evolution from traditional financial metrics. However, the current trend is pushing the boundaries of investment, emphasizing not just the inclusion of social and environmental considerations but the intentional deployment of capital where impact can be feasibly measured. This shift enables firms like, our client, to gain an evidence-based understanding of their contribution to the global sustainable movement, irrespective of whether they wish to be categorized as impact investors or not.

On a personal level, I deeply appreciate companies that strive to align with values beyond profitability. From my research, it's evident that our client currently falls within the broad spectrum of "Responsible investing," marking a solid starting point. It would bring me great pride to know that our research contributes to guiding them toward more intentional investments in the future.