Climate change awareness and environmental concerns have never been more important, and over the past few years these issues have been spoken about in abundance when describing financial investments.

Three phrases in particular have been commonly used to describe investment products and strategies, but there is still confusion as to their exact meaning.

Mike Appleby, investment manager on the Liontrust Sustainable Investment team, outlined the difference between ethical investing, responsible practices and impact investing.

“Ethical investing looks to avoid controversial industries such as tobacco, arms, gambling, pornography, fossil fuels and big oil,” he says.

“Responsible investment typically refers to conventional funds that may avoid (small) areas of the market on sustainability grounds and possibly have some engagement with the management of companies in which they invest.

“There are no clear definitions, and so when an adviser is looking for products for their clients, it’s really important to understand that there’s a lot of fuzziness between these terms”
Dan Kemp, Morningstar

“Impact investing describes an approach where investors want to own companies with meaningful positive impacts and that are able to quantify the benefits to society or the environment which they deliver.”

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