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There are nuanced differences between ESG, ethical, and green investing, according to Tony Adams, Head of Sustainable Investment Research at Lonsec, an Australian research house.
Many investors struggle to understand what ESG investing truly means. The terms are often used interchangeably, but they represent distinct investment strategies. At a basic level, investors typically seek a "good" portfolio that avoids companies perceived as doing "bad things," though the definition of "bad" varies widely between individuals.
Ethical Investing is primarily values-driven. Investors make choices based on personal moral standards, potentially avoiding industries like tobacco, alcohol, or weapons. This approach is highly subjective and centres on aligning investments with personal beliefs rather than following a specific framework.
ESG Investing takes a more systematic approach, integrating Environmental, Social, and Governance factors into investment decisions. Unlike ethical investing, ESG is more flexible. Investors can screen out companies with poor ESG performance, select companies excelling in sustainability, or focus on specific issues like gender equality or carbon emissions. The most common approach involves considering ESG risks alongside other financial risks and ensuring adequate compensation for these risks.
Green Investing is narrowly focused on environmental impact. It prioritizes companies leading in areas like renewable energy, susta...................... To view our full article Click here
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