Traditionally, asset owners divide their capital into two opposite poles, traditional investing and philanthropy. In the “finance-only” approach, investments are targeted for risk-adjusted financial returns without any regard for either social or environmental impact. On the other side, there is a philanthropic approach, which is a capital allocation for a better and more sustainable future without a financial objective. There are variations within this spectrum that still focus on the financial return rate but also have the growing expectation that investments must do no harm or actually promote social or environmental well-being. These are positioned between traditional investing and philanthropy and called socially responsible (SRI) or environmental, social and governance (ESG) investments.
The conjunction point of SRI & ESG investments and the philanthropic approach is impact investing, which combines the objective of social and environmental impact with a profit motive.