What is the difference between ESG Risk and ESG Impact, and why do I need both?

Most prevalent sustainable investment approaches focus on assessing sustainability as an additional factor of the financial-risk dimension (e.g., exposure to financial losses due to changes in the regulatory environment or consumer preferences) instead of measuring the impact of an organization on the world. Clarity AI believes that making the investment world a real lever for sustainability requires going beyond financial-risks linked to the sustainability of an organization. In order to do so, Clarity AI proposes to fully incorporate an impact dimension into investment decisions.

Clarity AI proposes a comprehensive and research-based approach that looks at the drivers of impact throughout the value chain (the impact that companies generate through their daily operations and the impact that their products and services generate in the world) and the types of impact (changes to the environment, and changes to the welfare of the individuals that form our society).

More concretely, ESG Risk measures an investment’s performance on Environmental, Social and Governance topics that could pose material risk to a company’s financial performance. On the other hand, ESG Impact measures the potential impact, which is to say positive or negative change in the world, that can be unlocked by an investment.