What does it mean to invest ‘ethically’ or with ‘impact’?

Demand for funds which cherry pick investments with strong environmental, social or governance (ESG) credentials has surged in recent years. 

Many of these funds include terms such as ‘ethical’ or ‘impact’ in their names. But what do these words actually mean? 

Below is a glossary of the key terms often used to describe investment styles and processes. 

In the absence of a global consensus, the two are often used to describe a range of investment approaches used by fund managers to assess ESG issues before choosing to buy or sell an asset. This could mean looking at a company’s climate change preparations, its record on deforestation or its boardroom diversity to ensure it is operating in a way that is socially and environmentally sustainable over time. It also covers the way in which the asset is then managed, for example in the way the fund looks to influence company management on topics of concern. 

Source: The Economic Times