Would you like to have an influence on the environment and society as a whole with your investment? Then it is worth taking a closer look at a special kind of sustainable investment: impact investing. The term, which first appeared in the USA in around 2010, stands for investments with the intention of achieving positive, measurable social and environmental effects in addition to financial returns.

Capital is made available on the strongly growing impact investment market to overcome the world’s most urgent challenges. There, investors decide in favour of companies, countries, or even charitable organisations that comply with strict sustainability criteria. The benchmark for investments with a positive impact is provided by the 17 Sustainable Development Goals (SDGs) of the United Nations, such as:

  • No poverty and zero hunger

  • Good health and well-being

  • Quality education

  • Affordable and clean energy

  • Decent work and economic growth

  • Responsible consumption and production

  • Sustainable cities and communities, etc.

Impact investing: clear rules

In contrast to other forms of sustainable capital investments (Sustainability criteria – the integrative sustainability concept of Raiffeisen Capital Management), the focus in the case of impact investing is on the direct, measurable effect that must also be accurately documented and communicated. In short: The impact must be visible. The EU is trying to eliminate the practice of greenwashing – which is painting things in a particularly environmentally friendly and socially responsible manner without sufficient foundations to justify this – by means of the Disclosure Regulation EU 2019/2088. While fund companies were left to decide for themselves whether a fund is an impact fund or not in the past, clear rules and definitions have applied since March 2021. For you as an investor interested in sustainable capital investments, the regulation seeks to simplify the process of comparing and selecting financial products.

For this reason, the EU introduced three categories for financial products. If funds are classified in accordance with Article 6 of the regulation (all traditional financial products), it means that they either do not comply with sustainability criteria or only do so to a small degree. Funds classified as per Article 8 (ESG products), however, demonstrate relevant sustainability characteristics. They consequently incorporate environmental and social aspects as well as features of corporate governance in the investment decision (ESG: three letters, one sustainability approach). Classification under Article 9 involves only those funds described in investment jargon as impact products. What is required here is the clear intention to achieve a positive social impact in addition to quantifying and assessing the corresponding objective (e.g.: reducing carbon emissions or creating affordable housing).

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Honest, precise, and comprehensible

For one year now, market participants with investment products in the area of sustainability have therefore been under an obligation to inform. Among other things, they need to publish information on their website about the current status, describe the sustainable investment goal, and provide details on the methods used to assess, measure, and monitor the impacts. This includes details on the data sources, on the criteria used to value the assets, and on the sustainability indicators that were applied to measure the impact. Furthermore, the regulation requires the disclosed information to be presented to investors in a manner that is clear, concise, and comprehensible. The information must be published at a clearly visible and easily accessible location on the website in a manner that is precise, honest, clear, simple, concise, and not misleading.

Returns and measurable impact

If you as an investor choose impact investing, then you are adhering to the principles of a capital investment that shall benefit ecology, the environment, and society over the long term. The fact that maximising profits is not the top priority does not mean sacrificing earnings opportunities. In the case of professionally managed funds, experts agree that impact investing does not preclude attractive returns. In general, as with all investments, the risks and opportunities depend on the selected product. Therefore, capital-market-related fluctuations in prices and currencies, as well as resulting losses, cannot be ruled out.

When considering this rapidly growing investment category, concern is often expressed that the desired impact cannot be measured (How is sustainability measured?). These concerns can be countered by the fact that, as per the EU Disclosure Regulation, the ability to measure the specifically defined impact is a fundamental criterion for investment products to be classified as impact investments in the first place. Secondly, there are clear examples from environmental and social areas that illustrate how success and impact can be measured.

This content is only intended for institutional customers.

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