Simple Explanation of Impact Investing

Only certain sustainable investments count as impact investing. We explain what lies behind the term, what challenges the measurement of impact poses for experts, and whether this modern form of investment is already suitable for private investors.

Impact investing: the investment of tomorrow?

Interest in sustainable business is growing steadily, and ecological and social awareness is on the rise, especially among the younger generation. An investment in sustainability is also an investment in the future. This is why more and more sustainable investments are also being found on the capital market. With the broader product range comes the need for measurable success of the investments, which are not only based on returns.

What does impact-based investing look like in the global market?

In micro-financing, investors provide loans to people in developing countries. This can have a variety of uses, but the goal is to reduce hunger and poverty.

Green bonds are bonds issued to states, municipalities or companies and institutions. They are used to finance projects and promote a wide variety of ecological, renewable energy and social projects.

Other investors buy shares in companies specifically in order to then use their voting rights for improvements in the areas they desire. Investors can also use alternative investments to bring about change.

Corporate investments

Investors choose a company where they can influence decisions. Participations can be subordinated loans or profit participation rights, for example.

Microfinance funds

These investments issue small loans to people and self-employed people in emerging or developing countries. The aim is to limit poverty and hunger. The social impact is sometimes controversial, as such microloans often carry interest rates in the double digits to ensure a return for investors. The risk is also hardly manageable for investors.

Social Impact Funds

These investments are intermediaries between startups and investors. Deposit amounts in six figures are the rules.

Green Bonds

Banks, companies s, cities or countries issue these bonds to finance, for example, wind farms, photovoltaic plants or energy-efficient new buildings and renovations. Investors receive returns in the form of interest and the risk is directly related to the issuer’s credit rating.

Making the world a little better with impact investments!

Investors take the right to have a say in decisions about sustainability. To do so, they selectively choose projects and companies where they can use their money to achieve improvements for the climate and society. Now, in addition to the return on investment, they are also interested in the impact of the investment, and so there are new metrics that make improved sustainability measurable. The market is still young, but growing rapidly, because many investors care about the future of people and the planet.

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