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Traditionally, investors evaluated their performance based on financial measures alone. But investing with an eye to environmental or social issues, not just financial returns, has become mainstream in the past decade. According to the Global Sustainable Investment Alliance (GSIA), an umbrella group, fully $23trn, or 26% of all assets under management in 2016, were in “socially responsible investments” that take account of environmental, social and governance (ESG) issues. But what counts as “sustainable investment” in the first place?

The nascent space still suffers from definitional quibbles: both over where to draw the line between sustainable and "normal" investments, and how to subdivide the universe of sustainable investment. The GSIA, for instance, counts seven distinct strategies. The least involved variant, and the one accounting for the greatest share of assets under management—around $15trn in 2016— is “negative screening”, which simply excludes assets deemed unsavoury. An example would be a stock portfolio that otherwise tracks a broad index, but excludes the shares of tobacco companies or gunmakers. “ESG integration”, the second-largest by the GSIA’s reckoning, involves taking ESG factors into account in the investment process (though the way investment firms do this in practice varies widely). Of the remaining strategies, perhaps the most interesting is "impact investment", which has received a lot of attention recently. Although it is the smallest by assets, it is also by far the most ambitious. Impact investors only invest in projects or firms where the precise impact can be quantified and measured: for instance, the reduction in tonnes of carbon dioxide emitted by a firm’s factory, or the number of girls educated in a village school as a result of a particular project. These variants are quite different but most are set up on the premise that financial return need not be sacrificed in pursuit of non-financial goals.

As demand has broadened from rich individuals to institutional investors, mainstream financial firms have entered the space. Investors seeking ESG investment options can turn to BlackRock, the world’s largest asset manager, or the asset-management division of Goldman Sachs, a bank. Impact-investment firms used to be small and niche, but two of America’s largest private-equity firms, Bain Capital and TPG, have recently launched such funds. Offerings are available across asset classes, too. Bond investors can turn to a whole new asset class, that of “green bonds”, the proceeds of which are earmarked for environmental projects. (Issuance of such bonds has rocketed from less than $500m in 2008 to over $160bn in 2017.)

Consistent measures and ratings are still a work in progress. For instance, many data providers now rate companies on ESG metrics, allowing investors to compare companies easily. Issuers of green bonds have long sought external validation of their environmental credentials. While the first certification schemes merely made a binary ruling on whether bonds were green or not, new methodologies seek to quantify the relative environmental impact. Measures that allow for comparison across investments are still lacking. The European Union wants to change that, and has announced plans to set up an overarching framework for evaluating ESG ratings (ie, a way to rate ratings, not just another ratings system). But the more fundamental question is the trickiest to solve, because it boils down to ethics rather than finance. How can the relative value of, say, educating a girl in the developing world be compared with preventing a tonne of air pollution? In the end, investors’ choices among the different variants of sustainable investments will be driven by their own personal interests, rather than just by financial calculations.