Impact investing: sustainable investments with that little bit more
March 11, 2020
3 minutes to read
Sustainable investments are increasingly becoming the new normal. By making sustainable investments, you're not only aiming for a potential return, but you're also taking non-financial factors into account. By way of example, you can choose to remove companies, sectors or governments that have a poor reputation from your portfolio, or you can only invest in companies or governments that consider sustainability criteria relating to the environment, society and proper governance.
Impact investing goes one step further still. With this type of investing, you aim to make a tangible contribution to society or the environment. Impact investing therefore goes to the heart of sustainable investing: not only avoiding 'bad' companies and opting for companies that do not cheat and that have respect for people and the environment, but also opting for investments through which you help society and/or the environment. You're therefore investing for a better world.
Impact investing can take place in several ways:
- Opting for sustainable companies that develop solutions to reduce waste, increase literacy, produce healthy food, develop cures for illnesses, look for solutions for clean drinking water, and more.
- Opting for sustainable companies or sustainable investment funds that make a significant part of their profits from initiatives that benefit society and/or the environment. Job opportunities for the underprivileged, reforestation projects, and more.
- Opting for financing high-impact projects. Investing in green bonds is one such example, where your funds are only used to finance sustainable projects such as building bicycle infrastructure, building energy-efficient homes or building wind farms.
A common thread of impact investing is that the results must be measurable. "We've focused on our environmental footprint in recent years" is a phrase that says little. However, the following phrase provides more information: "Thanks to our products, 10,000 families in Laos gained access to clean drinking water in 2019." Talking about impact investing is therefore only worthwhile if the results can be measured in order to assess the impact.
In terms of investment volume, impact investing is still a niche market. It is, however, something that may fundamentally change in the future. We are constantly moving towards a world in which companies and governments must assume greater responsibility for the consequences of their actions for society and the environment.
If, today, you want to build a diversified portfolio using only impact investing, that's not (yet) possible. The range of solutions on offer is still limited, and many impact investing options remain focused on sustainable energy. If you want to invest in impact investing funds, you need to make sure that you have a wide-ranging portfolio. You should also check that the funds' visions and approaches match your own beliefs.