Are ESG and impact investing the same thing?
In short, no.
Broadly speaking, investing with an ESG lens can be beneficial for people and planet, but it's a fundamentally different approach from investing with impact intent.
The differences depend on how ESG and impact investing are defined (and there are several definitions of both!).
In the context of this playbook, we define impact investing in venture as:
Investments made with the intention to generate optimal positive, measurable, social and environmental impact alongside a financial return. This is achieved by investing in startups whose purpose is to contribute to solutions that create positive change – and over time enables and evidences strong impact performance through proportionate impact practice.
Most frameworks on ESG are not aiming to create optimal social and environmental benefits. Nor are they focused on businesses where the core purpose is solving a social or environmental problem. ESG is typically a risk-based approach used to assess material environmental, social and governance factors that could influence the bottom line. It can be applied to any business, regardless of impact intent.
Additional reading
There is a lot that can be said on the topic; some additional references on this topic include:
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