The name-versus-practice gap here is worth naming directly, because it runs the opposite way from most terms on this site. Usually a term's official definition is narrower than popular usage. Here, the regulator's own language is the broader, looser one: the SEC's investor glossary states that ESG investing "is often also called sustainable investing, socially responsible investing, and impact investing," treating all four as names for one practice. The narrower, more precise distinctions among them come from industry convention rather than from any rule, and no body enforces them. That does not make the conventional distinction meaningless. It means the distinction is a matter of how the investing industry has come to use these words, not a matter of law, so a reader should expect to see the terms used loosely in some places and precisely in others.
Where the conventional distinction lands is this. Socially responsible investing is generally used for exclusionary, values-based screening: ruling out companies or industries a portfolio should not hold, on ethical or values grounds, regardless of how those companies perform financially or how they are governed. ESG investing is generally used for integrating environmental, social, and governance factors into the analysis of companies a fund might still hold, weighing those factors alongside financial ones rather than excluding categories outright. Impact investing is generally used for pursuing a measurable, intended outcome, sometimes accepting a lower expected return to do so, and measurement of that outcome is central to the definition in a way it is not for the other two. A fund can combine more than one approach, and many do, which is part of why the labels blur together in practice.
SRI's exclusionary method has a specific history, and it predates the ESG label by decades. The approach traces most directly to faith-based investing, in which religious institutions and individual investors have long screened portfolios against categories considered morally objectionable, most commonly alcohol, tobacco, and gambling. That lineage is why SRI is described as the oldest of the family: it is built on a tradition of refusing to hold certain industries at all, which is a fundamentally different operation from analyzing how well a company manages its environmental or governance practices.
No regulator defines a required or standard SRI screen, so the screen a reader encounters is the fund's own. A fund marketed as socially responsible states its exclusions in its prospectus, and those exclusions vary from fund to fund: one may screen out fossil fuel producers and weapons manufacturers; another may add gambling, adult entertainment, or private prison operators; a third, built around a specific faith tradition, may screen a different list entirely. The word "responsible" does the work of a brand rather than a defined standard, so the prospectus, not the fund's name, is where the actual screens are found.
The mechanical consequence of exclusion is a narrower universe, and that is true regardless of which industries are excluded. Ruling out entire sectors removes companies that a broad market index would otherwise hold, which by construction reduces diversification relative to that broad index. This is not a judgment about whether the excluded industries deserve to be held; it is an arithmetic fact about screening any category out of a portfolio, and it applies equally to a screen built around fossil fuels, a screen built around alcohol, or any other exclusion list a fund chooses.
Where a fund's name suggests this kind of focus, the same fund names obligation applies that reaches ESG and sector funds. Under 17 CFR 270.35d-1, a fund whose name indicates a values-based or responsible-investing focus must adopt a policy to invest at least 80% of its assets in accordance with that focus, and the mechanics of that requirement are covered on the page for growth stocks, where the rule does the same work for a different word.
