ESG, SRI, and Impact Investing Strategies: How Are They Different?

Impact investing is a broad category that includes a wide range of strategies. Among them are two that are focused on environmental, social, and governance issues: ESG (for environmental, social, and governance issues) and SRI (for socially responsible investing).

Investors who are interested in making an impact with their investing dollars may want to consider funds that embrace ESG or SRI strategies, but impact investing can include other goals as well (e.g., investing in or avoiding certain industries, sectors, or goals).

While there are ways in which these three strategies overlap, it’s important to understand the distinctions as they pertain to your own investing goals.

Understanding ESG, SRI, and Impact Investing

These days, numerous companies seek to meet certain ethical, social, environmental, or other standards. While some criteria have been inspired by the United Nations (U.N.) Principles for Responsible Investment or the U.N.’s 17 Sustainable Development Goals, investors need to bear in mind that the definitions of ESG, SRI, and impact investing can vary from company to company and from country to country.

Nonetheless, investor interest in these strategies continues to grow. In fact, 61% of asset owners (e.g., institutional investors) say that ESG considerations are a fiduciary duty as part of the investment process, according to the 2025 Voice of the Asset Owner survey by Morningstar, the fund research and rating company.

As a result, several companies have developed proprietary screening tools and scoring methods to help investors assess different investments, including stocks, bonds, exchange-traded funds (ETFs), and more.

Defining ESG, SRI, and Impact Investing

That being said, the lack of clear-cut ESG and SRI standards dates back to the very beginnings of these strategies.

As early as the 18th century, religious groups, such as the Methodists, would take a financial stand against certain societal problems (e.g., the slave trade or alcohol and tobacco manufacturing) by not investing in related organizations. This values-based approach became known over time as impact investing.

Today, ESG investing and SRI may be considered modern offshoots of that philosophy, but typically with a focus on investing proactively in certain companies or companies or sectors with the goal of supporting specific changes or outcomes.

It’s still possible to invest in ESG and SRI strategies that explicitly avoid certain industries, companies, or types of products (e.g., companies known to use child labor).

Impact investing tends to be used interchangeably with the term values investing, as well as ESG investing and SRI, but again, these strategies have different aims and standards.

Impact Investing

The goal of impact investing is for investments to have a positive, measurable impact in a given area. That might mean avoiding certain industries (e.g., alcohol or weapons) or investing directly in social, environmental, political, or other concerns.

Some mutual funds or exchange-traded funds (ETFs) may utilize impact investing strategies, but impact investing may also involve private funds, such as closed-end private equity and venture capital funds. This is partly because some public companies have to prioritize financial goals to meet shareholder expectations or earnings forecasts, so impact goals alone may not suffice (more on profitability below).

Here are some examples of impact investing categories:

Impact Category	Metrics
Environmental	• Trees planted • Solar panels installed • Greenhouse gas emissions limited or reduced
Women’s Empowerment	• Female founders supported • Female employees
Jobs and Education	• Jobs created • Income created • Access and enrollment targets
Affordable Housing	• People housed • Units built
Essential Services	• Individuals provided with bank accounts • Patients served in medical facilities

ESG Investing

ESG stands for environmental, social, and governance factors. It’s a set of criteria that can help investors evaluate companies according to how well they uphold or meet relevant criteria, in addition to financial concerns.

ESG investing is considered a form of sustainable or impact investing, but companies that embrace this term are theoretically expected to focus on positive results in those three areas.

When ESG strategies started gaining more attention in the 1960s, some investors assumed ESG investing was primarily about values and ethics. Over time, investors came to realize that ESG strategies may also impact a company’s financials. For example, ESG reporting can help illuminate potential risks to company performance, not only progress toward sustainability goals.

Still, adoption of ESG reporting and analysis has been slow owing to a lack of consistency around standards and metrics for meeting these criteria. While the Securities and Exchange Commission (SEC) adopted new rules in early 2024 to help “standardize climate-related disclosures by public companies and in public offerings,” it soon stayed those rules when a number of groups filed petitions for review in multiple courts of appeals.

Overall, there is still quite a bit of variance in these standards.

However, the table below shows some common ways to assess a company’s adherence to ESG standards:

Environmental	Social	Governance
Energy consumption	Community engagement and support	Diversity on the board of directors
Waste and pollution	Human and labor rights	Management performance
Climate change mitigation and adaptation	Health and safety impacts on products, local areas, etc.	Executive compensation
Conservation and protection of biodiversity	Shareholder relations	Corruption
Resource management, such as water usage and sanitation	Employee relations	Disclosures and transparency

SRI

Socially responsible investing, or SRI, is another impact investing category that focuses on social and ethical issues. SRI mutual funds were among the first values-based investment products on the market.

While SRI is similar to ESG, it’s more broadly defined. Unlike ESG investing, which revolves around a set of standards, SRI doesn’t have clearly defined criteria, and investment strategies vary depending on the company.

SRI-focused investors might choose to avoid certain investments or industries or choose companies that specifically work on or donate to certain causes. Investors may need to evaluate companies and funds based on their own criteria.

SRI investing strategies can include a focus on one or more of the following:

•   Alternatives to fossil fuels (e.g., clean energy like wind or solar technologies)

•   Avoiding so-called vice industries, such as alcohol, tobacco, cannabis, or gambling

•   Investing in female or minority-led companies or companies with a social justice mission

•   Avoiding companies relating to arms manufacturing and the military

•   Investing in companies that adhere to human rights standards

•   Supporting specific environmental outcomes (e.g., mitigating air and water pollution or safer agricultural practices)

Is Sustainable Investing Different from ESG, SRI, and Impact Strategies?

Sustainable investing strategies can encompass SRI as well as ESG strategies. And while some investors use sustainable investing and impact investing interchangeably, it’s important to remember that not all impact investing is sustainable in nature.

Can SRI or ESG Investing Be Profitable?

The performance of SRI and ESG strategies versus their conventional peers has long been the subject of debate. Nonetheless, the value of assets allocated to mutual funds and ETFs with an ESG focus has grown steadily in recent years. As of May 2026, according to data from the Investment Company Institute, the value of global assets in ESG funds was $674.4 billion, which is up 4.1% from May 2025.

Investors interested in SRI and ESG strategies may want to examine the FTSE4Good Index Series, which is a compilation of stock indexes that track companies seeking to meet certain criteria or achieve certain environmental, social, or corporate governance goals. Morningstar has also developed a sustainability rating system, in use since 2016.

The Takeaway

Investors may want to bear in mind that, with the steady growth of ESG and SRI strategies over the last couple of decades, investment opportunities that focus on having an impact on the world may well expand.

In addition, the underlying goal of these strategies is to make a difference and potentially see a profit. That said, impact strategies overall don’t reduce investment risk factors. All types of impact investing, including ESG and SRI strategies, are subject to the same economic and market risk factors as conventional strategies.

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FAQ

Do ESG and SRI strategies have universal standards?

There is no global, universal set of standards for environmental, social, and governance or socially responsible investing strategies. Definitions, metrics, and screening methods can vary widely among companies and countries, making it important for investors to research specific funds or criteria before investing.

Are ESG and SRI investing strategies profitable?

Environmental, social, and governance and socially responsible investing strategies have the potential to be profitable and have seen significant asset growth, but their performance compared to traditional investments is debated. As with any investment, they are subject to standard market and economic risks, so results may vary depending on market conditions and fund choices.

What is impact investing?

Impact investing is a wide-ranging strategy that attempts to be socially, environmentally, and governmentally responsible while attaining positive returns. This may come in many forms, including investing in solar or wind farms, providing loans to small businesses in developing nations, or investing in affordable housing developments.

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