While traditional investments focus primarily on financial returns, ESG investing fundamentally aims to do both well and good, thereby achieving a double-bottom line.
This approach was inspired by the United Nations' Principles for Responsible Investment (UNPRI), initiated in 2005.
However, while ESG investing incorporates ethical considerations into investment decisions, its focus is not necessarily on creating additional impact.
ESG investments might avoid harm or support general good practices, but they don't always aim for or measure specific, additional impacts.
This is where the concept of additionality sets impact investing apart from ESG by emphasizing the direct, tangible impacts of investments.
It ensures the impact investing goes beyond passive screening or risk mitigation, actively contributing to positive change.
On the other side of the spectrum of private capital, there is philanthropy.
Philanthropy remains a vital and active component within the impact investing ecosystem; continuing to fulfill essential roles, particularly in areas where return on investment may not be immediately evident or measureable.