Typically, at EF we use the term “Ethical Investing” or “Ethical Finance”. But the many different phrases and terms have become a notable problem in our industry in recent years. A quick Google search will throw out multiple terms. But what do they all mean? Are they all the same or are there distinctions? We’ve singled out a few to define for you. 

As mentioned above, Ethical Finance is our preferred term. Ethical Finance is the practice of creating your financial plan by choosing investments and financial products from companies that provide positive financial returns while also prioritising the greater good. Alongside generating positive returns, an investor that chooses ethical finance looks for the assurance that their money is being used for projects that align with their own, personal values.That’s why we say that we’ll make your money change your world. We’ll help you to reach your personal finance goals while also helping you to make a difference in the world. 

Green Finance can be defined as any financial activity that aims to help the environment and have a positive impact on the world to ensure a resilient future. These activities include an investment that promotes environmentally positive activities such as NS&I’s Green Bonds. Although similar to ESG Finance, Green Finance is only concerned with the environment. 

ESG investing (or sustainable investing) centres around the principles of environment, social and governance. It is concerned with issues such as the climate crisis but also social issues such as global hunger and poverty and governance issues such as board diversity. It can be seen as a risk framework to help investment managers ensure that companies are meeting certain standards. 

Impact investing aims to create financial gains alongside benefitting social or environmental causes. These investments are intended to generate a positive and measurable social and environmental impact. This type of investment is often linked to the UN’s Sustainable Development Goals. For the most impactful outcome, this type of investing works best with good management, data and engagement. 

So, it can get a bit confusing, right? There seems to be a lot of overlap between all the terms and definitions. Well,we’re not the only ones who think so. The FCA and ShareAction have both acknowledged the confusion within the sector and have been working on projects to help provide clarification. Check out tomorrow’s blog to find out more!