What is Impact Investing?
What is Impact Investing?
Impact investing refers to sustainable investments with the aim of not only providing returns for the investor but also measure a direct and demonstrably positive impact in terms of sustainability to be able to. These include, for example, renewable energies, education and health programs or the creation of affordable housing.
Investors who invest their money in impact investing products want to invest in future-proof solutions, that promote ecological and social innovations and make their contribution to environmental protection understandable.
In order to make the investment in this sustainable investment measurable, very specific impact goals are set predefined, which are documented as the investment increases in order to reflect progress can.
How can you invest in impact investment products?
There are different ways investors can invest their money in impact investment products. The most well-known forms of investment are presented below:
Investments
Usually, most financial products in the area of impact investment exist outside of the financial market (stock exchange). For example, the investor's capital is contributed here in the form of a direct stake in ecologically oriented start-ups or social enterprises.
Many a rich man who has a lot left over and wants to invest wonders how he can save his...
In addition, many companies offer so-called citizen shares as company participation or profit participation rights, bonds and subordinated loans.
The most popular are now projects that use the so-called Crowd investing financed. The companies benefit from the experiences, contacts and recommendations of investors, who can then act together as a community.
Green bonds
Investors can obtain so-called green bonds from banks, corporations, states and municipalities. Investors receive interest for the term of the bond and their capital investment back at the end of the term. Green bonds finance certain projects, such as the expansion of clean energy through PV systems or the construction of energy-efficient houses.
Social bonds
With social bonds, investors' money flows into loans that are intended to finance social added value. These include projects in the areas of affordable housing, education, integration, health and public services. Private banks usually offer such bond programs for investors.
ELTIF
So-called “European long-term investment funds”, known as ELTIF for short, are issued by the EU to private investors. whose capital is invested in cross-border projects that help with climate change and the energy transition should. Up to 70 percent of the capital is invested in tangible assets such as solar and wind power, waste disposal or transport. Shares in companies are also acquired, which are included as an additional asset class in such a fund.
Advantages and disadvantages of impact investments
Impact investments also have two sides. Before you decide to invest your money in this way, you should consider both the advantages and disadvantages.
The advantages of impact investments
When investing in impact investment products, you deal with issues of the future. By adding such products to your portfolio, you are investing in promising technologies that serve a good purpose right from the start. You also benefit from attractive return opportunities, as the guiding principle of sustainable investing is becoming more and more popular.
The disadvantages of such systems
However, individual direct investments have the disadvantage that they can only be implemented if the investor brings in a certain amount of investment, which can usually be very high. If your portfolio is not that large, you should choose the fund or bond option, as broader diversification is possible and the form of investment is more liquid.
Furthermore, it may happen that you cannot achieve the desired positive effect with your investment. Reasons why the goals could not be achieved could include, for example, imprecise planning or implementation of the project, which is why investors always have to deal with the risk of losing their capital have.
Ultimately, everyone has to decide for themselves which asset classes they want to invest in. Investors should choose a suitable form of investment based on their wishes, options and strategy. In addition, you should first get enough information so that you can better decide what is invested in a financial product, how high the risks are and what return can be expected is.
