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Impact investing: this is what you want to know for a strong start!

Claudia Esveldt
30 April 2024
17889 min
Impact beleggen

Impact investing: this is what you want to know for a strong start!

In a constantly evolving world, investors increasingly feel the need to look beyond mere financial returns. Impact investing, an emerging opportunity in the financial world, provides an answer to the growing demand for meaningful investments.

In this blog, we dive deeper into the world of impact investing: what is it? Is there a difference with impact investing? What is the expected return of impact investing and what are good examples? We also discuss the pros and cons as well as give you a concrete step-by-step plan to get started.

After reading this, we hope you are enthusiastic about the opportunities impact investing offers and that you can make a strong start.

Inhoudsopgave

  1. What is impact investing? 
  2. Relevant to impact investing
  3. Returns of impact investing 
  4. Examples of impact investing 
  5. The benefits of impact investing 
  6. Disadvantages of impact investing
  7. How can you get started with impact investing? 
  8. Make impact and money

What is impact investing?

Impact investing is a form of SRI that focuses on making positive social or environmental impact, in addition to generating financial returns.
The aim is to allocate capital to companies, projects or impact funds that actively contribute to solving social and climate problems.

In particular, this involves measurable positive impact: through impact measurement it is possible to evaluate how effective the investments are in achieving positive social and environmental change. Examples include saving X kilograms of CO2 emissions or creating X litres of clean drinking water.

Achieving a positive financial return is certainly not forgotten, but there are limits to this. Investments with a positive financial return, but a potentially negative impact, are rejected. For example, investments in the alcohol industry or fossil fuels.

The star of impact investing is rising: the market in 2021 was USD 1.1 billion worldwide with an annual growth rate of 18% between 2017 and 2022.

Impact investing can be in a variety of industries and projects, such as renewable energy, regenerative agriculture, carbon storage, climate technology and micro-credit. The most popular category is food & agriculture (61%), followed by energy (55%) and healthcare (51%).

All in all, impact investing puts your assets to work to make a positive sustainable and/or social impact without losing sight of a good financial return.

De groei van Impactbeleggen

The growth of impact investing (Source: GIIN, 2023)

Relevant to impact investing 

There are several topics and terms relevant to impact investing. Below, we highlight some of them.

ESG

ESG stands for Environmental, Social and Governance. With ESG investing, you include the so-called ESG factors in your decision to invest in a company. This form of investing is mostly found on the stock exchange and leans on so-called ESG scores. These are indicators in the form of a grade or another variable (e.g. A-F, AAA-BBB).

ESG beleggen

Net-positive

The term was first introduced by former Unilever chief Paul Polman. In his book of the same name, he preaches that companies can become net-positive by giving more to the world than taking from it. This means that the company not only takes responsibility for minimising harmful effects, but also actively contributes to solving social and environmental challenges.

A good example is clothing brand Patagonia, which aims to become net-positive by using recycled materials, producing garments that last, and encouraging customers to repair or recycle rather than buy new products.

These companies teach us that it is possible to combine achieving business goals with positive impact on the environment and society. At Corekees, we work with a number of partners that are net-positive, such as Courageous Land, Bamboologic and Investancia.

SDG’s

How do you determine whether companies are net-positive? The long answer is that there are many different ways to do that, for example using the Sustainable Development Goals (SDGs). This is a well-known term in the SRI corner and widely used worldwide. This is not surprising when you consider that these goals were set by the United Nations to collectively address our planet’s biggest challenges.

The 17 goals set range from eliminating poverty and hunger to reducing global warming and protecting nature (stopping plant and animal extinction).

De 17 Sustainable Development Goals

The 17 Sustainable Development Goals(Bron: United Nations)

To determine whether a company is net-positive, the SDG framework is a valuable tool. For example, by identifying which SDGs are best aligned with the company’s core business and with which it is making the greatest impact. It can also look at how these goals are integrated within the company and what plans they are implementing to actually achieve them.

Returns of impact investing

It is often thought among investors that investing in sustainability produces lower returns. However, several scientific studies show that sustainable investing need not have a negative effect on expected returns.

Little research has yet been done on the difference in returns between impact funds and conventional funds. However, more research has been done on the performance of ESG funds compared to traditional funds.

Research by Morningstar, a US research firm that scrutinises and compares the performance of mutual funds, shows that ESG funds outperformed funds without an ESG strategy on average from 2015 to 2021. But in addition, there are also studies that show lower or comparable returns.
In short, the financial returns of SRI are not inferior to those of conventional investing. There is also the added benefit of social and sustainable returns.

Examples of impact investing

There are different ways of impact investing, for example there are sustainable impact funds where you invest in a mix of shares/bonds of companies that offer sustainable solutions. There is also microfinance where financial resources are provided to people in developing countries to set up businesses. And there are green bonds, which are bonds issued to finance specific environmental projects.

Concrete examples of impact investing are:

  • Social Impact Fonds Rotterdam: this is a local impact investment fund which invests in social enterprises making a positive impact on the city of Rotterdam.
  • Carbon Equity: a climate investment fund that invests in venture capital and private equity funds. Its focus is on climate tech, i.e. innovative climate solutions. Participation is possible from an amount of €100,000.
  • Bamboologic: is Europe’s first large-scale bamboo grower. This grass grows 15x faster than wood and removes a lot of CO2 from the atmosphere. The bamboo trees are grown in Portugal and sold as bonds. The return on the impact investment comes from the annual harvest yields. Investing in European Bamboo can be done through Project Bamboo, a collaboration between Bamboologic and Corekees.
Het Bamboebos van Corekees in Portugal

Corekees’ Bamboo Forest in Portugal

Inspired by the idea of impact investing? Great news, you’re in good company! Did you know that Bill Gates is an active impact investor? Through the Bill & Melinda Gates Foundation, he focuses on tackling global challenges such as poverty, healthcare and education. Sir Richard Branson, founder of the Virgin Group, is also involved in several impact investing initiatives. Through projects such as Virgin Unite and The B Team, he focuses on areas such as renewable energy, environmental conservation and social entrepreneurship

The benefits of impact investing

Dat beleggen met impact veel kansen biedt moge duidelijk zijn. In deze alinea lees je meer over de voordelen van deze vorm van beleggen ten opzichte van conventioneel beleggen: 

  • Positive contribution
    With impact investing, you can make a positive change. By investing in companies and projects that promote sustainability, social justice or other societal goals (SDGs), you as an investor contribute directly to solving social and environmental problems.
  • Future-oriented business model
    Impact investing involves investing in  companies with a sustainable and healthy business model. Companies are less likely to have negative environmental or social impacts, as is the case with the oil industry. There is also a greater focus on the long term, which increases the likelihood of stable return.
  • Going with the flow
    There is a lot of focus on sustainable initiatives and innovations, both within the business community and on the global political agenda. A lot of attention equals a lot of inflow of money and resources. This can cause an increase in the value of sustainable bonds, impact funds and certificates. In short, an opportunity to benefit from this as an investor.

Disadvantages of impact investing

Besides the advantages of impact investing, there are also disadvantages to consider. We highlight three disadvantages compared to conventional investing.

  • Time and patience required
    Impact investments often focus on long-term outcomes and social change. As a result, it can take longer for investors to see tangible results compared to other forms of investing. Investors looking for quick short-term gains may be disappointed by the time required to realise positive impact. It takes patience and a long-term view to reap the benefits of impact investing.
  • Complexity of impact measurement
    There are many different methodologies when it comes to measuring and assessing the impact made. Because there is currently no universal standard for impact measurement, it is complex to objectively compare the performance and results of investments.
  • Higher risk
    Part of the impact investment sector focuses on emerging sustainable sectors. While these sectors may be built on pioneering innovations, they have yet to prove themselves over the long term. Think, for example, of plant-based meat or hydrogen.

How can you get started with impact investing?

With impact investing, you have the opportunity to align your investments with your values and also generate financial returns by contributing to positive change in society. It is a great addition to your investment portfolio, but certainly a good starting point for novice investors.

Below are 5 practical steps to start impact investing:

  1. Read about the possibilities
    You already started with this step by reading this blog. We recommend that you read up on the possibilities within impact investing; the different platforms, forms, projects and potential risks.
  2. Define your goals
    Impact investing allows you to invest in different industries, each with their own impact. Do you opt for sustainable energy or do you want your investment to fight social inequality? And do you want to receive a high financial return in addition to sustainable/social impact? The more specific you set your goals, the more targeted your search will be.
  3. Select an investment project that appeals to you
    See which projects appeal to you the most and are in line with your goals. Inform yourself about the benefits and risks of the different projects, so you know where you stand.

    At Corekees, we have sustainable investment products
    that differ in terms of impact, duration and expected financial returns.

  4. Choose a one-off or periodic investment
    With most platforms, you can choose a one-off or a monthly deposit. With the latter, you unknowingly save together an ever-growing portfolio.

  5. Monitor
    Monitor your investments periodically. This way, you can see what the impact is, how much return you can expect and whether your investment strategy still suits your current situation.

    At Corekees, we have developed a platform where our investors can access their portfolio. Here they can see the impact and see when the next payout of returns is.

Start investing at Corekees here.

Make impact and money

Start impact investing? At Corekees, you can start from €22.50.

We believe that sustainability can be financially attractive.

Check out our project here.

Impact beleggen

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