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Dr Hakan Lucius 
Dr Hakan Lucius
Published Feb 14, 2023
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Sustainable finance and impact investing are two related but distinct approaches to responsible investing.Sustainable finance refers to the integration of environmental, social, and governance (#ESG) factors into financial decision-making and investment processes. Sustainable finance thus reduces risks from ESG considerations, and possibly enhances returns on a risk-adjusted basis. It aligns investment with long-term stability and growth by addressing social and environmental issues. This approach also helps financial products and services to also promote sustainable development goals, such as reducing greenhouse gas emissions and mitigating climate risks, improving social conditions, and promoting good governance.
Impact investing, on the other hand, refers to investments made with the intention of generating positive social or environmental impact alongside financial returns. Impact investing often seeks to address global challenges, such as poverty, access to education, and environmental degradation, by investing in companies, organizations, and funds that are working to solve these problems. Unlike sustainable finance, which seeks to integrate ESG factors into financial decision-making processes, impact investing is focused specifically on investments that generate social and environmental impact.
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The key difference between sustainable finance and impact investing is that sustainable finance tends to be more focused on ESG integration and risk management, while impact investing is focused on generating positive impact and creating change.
Impact investors often invest in early-stage companies and organizations that are working to solve social and environmental problems and may be willing to accept lower financial returns in exchange for the potential to make a meaningful impact.
In summary, both sustainable finance and impact investing play an important role in promoting sustainable development and addressing global challenges. However, their intentions are different.Sustainable finance is focused on integrating ESG factors into financial decision-making processes, while impact investing is focused on making investments specifically aimed at generating positive social and environmental impact.
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3 Comments
Daniel Shim
Professor, California State University Channel Islands
1y
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Pointed and articulated comments, Hakan! Cheers,
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Antoine Rech
ESSCA Luxembourg, Campus Director
1y
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Very interesting Dr Hakan Lucius; see you soon!
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Robert MacColl
1y
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Thanks Dr Hakan Lucius for the insights on #ESG and #sustainablefinance. Very interesting to see how business behavior can be changed for the better by changing how success is measured. Did we not learn about economic externalities at INSEAD that railroads should pay farmers for the cows they hit. Look forward to seeing you later this year.
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