Types of Sustainable Investments: Understanding the Different Approaches
Sustainable investing is often talked about as if it’s one single idea but, in reality, it’s an umbrella term that covers a range of different approaches, philosophies, and priorities. While they all share a common goal, aligning money with positive outcomes, they can look very different in practice.
For anyone new to sustainable investing, this can quickly become confusing. Terms like ESG, ethical investing, impact investing, and green investing are often used interchangeably, even though they don’t always mean the same thing.
This guide breaks down the main types of sustainable investing, explains how they differ, and helps you understand which approaches might align best with your values and goals. This isn’t about telling you what to invest in, it’s about giving you the language and context to explore your options with confidence.
ESG Investing (Environmental, Social and Governance)
ESG investing is one of the most common and widely discussed forms of sustainable investing. Rather than focusing purely on ethical considerations, ESG investing looks at how companies manage risks and opportunities related to environmental, social, and governance factors.
What ESG investing looks at
Environmental: Climate impact, carbon emissions, energy use, waste, water management
Social: Labour practices, employee wellbeing, diversity, supply chains, community impact
Governance: Board structure, executive pay, transparency, shareholder rights
ESG data is often used by fund managers to assess how well a company is run and how exposed it might be to long-term risks. For example, a company with poor environmental practices may face regulatory fines or reputational damage in the future.
Important to know
ESG investing does not automatically mean “ethical” or “green”. Some ESG funds still invest in oil companies, banks, or large multinationals if they score well relative to peers. ESG is often about risk management and long-term performance, rather than moral judgement.
This makes ESG investing popular with large institutions and mainstream investors, but it can surprise beginners who expect stricter exclusions.
Ethical Investing
Ethical investing focuses more directly on aligning investments with personal or societal values. Instead of ranking companies against each other, ethical investing often starts with clear rules about what is and isn’t acceptable.
Common ethical exclusions
Tobacco
Weapons and defence
Gambling
Fossil fuels
Alcohol
Ethical funds may completely avoid certain industries regardless of financial performance. The exact criteria depend on the fund’s philosophy, which is why reading fund documentation is so important.
Ethical investing offers clarity and alignment with personal beliefs, but it can also limit the range of investments available. That doesn’t make it better or worse, it simply reflects different priorities.
Impact Investing
Impact investing goes a step further by actively seeking to generate measurable positive social or environmental outcomes, alongside financial returns.
Rather than just avoiding harm, impact investing aims to create benefit.
Examples of impact focus areas
Renewable energy and clean technology
Affordable housing
Healthcare access
Education
Financial inclusion
Impact investments are often linked to specific projects, companies, or outcomes, and many impact funds publish reports showing what their investments have achieved.
Things to be aware of
Impact investing can involve:
Higher risk
Less liquidity
Longer time horizons
Some impact investments are private or not publicly traded, making them less accessible to casual investors. That said, impact-focused funds and ETFs are becoming more common.
Socially Responsible Investing (SRI)
Socially Responsible Investing, often shortened to SRI, is one of the earliest forms of sustainable investing. It traditionally combines ethical exclusions with positive screening.
How SRI works
Avoids companies that cause social or environmental harm
Actively includes companies seen as leaders in responsibility or sustainability
SRI strategies often overlap with both ethical and ESG investing, which is why the terminology can feel blurry. The key difference is that SRI is typically more values-driven than ESG.
Green Investing
Green investing focuses specifically on environmental solutions and climate-related themes. This approach is narrower in scope than ESG or SRI but can be very appealing to investors who prioritise environmental impact.
Common green investment themes
Renewable energy (solar, wind, hydro)
Energy efficiency
Electric vehicles
Clean water
Sustainable agriculture
Green investing is often thematic, meaning investments are chosen because they contribute to a specific environmental goal rather than overall sustainability performance.
Risks to consider
Because green investing is focused on specific sectors, it can be more volatile. Performance may depend heavily on regulation, subsidies, or technological progress.
How These Approaches Overlap
One of the biggest sources of confusion is that these approaches are not mutually exclusive.
For example:
An ESG fund may also apply ethical exclusions
An impact fund may focus on green technologies
A green fund may use ESG scoring to select companies
Understanding the underlying approach matters more than the label on the fund.
Choosing an Approach That Fits You
There is no single “right” way to invest sustainably. The best approach depends on:
Your values
Your financial goals
Your risk tolerance
How involved you want to be
Some investors care deeply about exclusions. Others focus on long-term risk and performance. Many combine multiple approaches over time.
The most important step is understanding what each approach actually does, rather than relying on marketing language.
Final Thoughts
Sustainable investing is not one fixed idea, it’s a variety of approaches that reflect different priorities and beliefs. By understanding the main types of sustainable investing, you’re better equipped to explore funds, companies, and opportunities with clarity and confidence.
This guide is a starting point. From here, you can dig deeper into specific strategies, learn how to research funds properly, and decide what sustainability means to you as an investor.
*This article is for informational purposes only and does not constitute financial or investment advice.