*This article was originally written for our Swiss market, it may contain Swiss references.
Between the climate crisis, gender inequality and a growing gap between the rich and poor, it’s hard not to be pessimistic when considering the future of our beloved planet.
As individuals, we try to live more consciously by eating less meat, avoiding plastic and taking the train instead of planes. But what if there is a way you could make an even bigger impact, by steering capital into the companies that are solving these major problems?
Well, there is, and it’s called impact investing.
In recent years, the topic of impact investing has caught the attention of many investors, especially in Europe and the US. It’s being driven by a new, rising generation of investors who are setting new standards for sustainable investing in Switzerland and beyond. They are shaping the future of investing – with impact investing now considered by many as the ‘future’ of investments.
People are becoming more aware of the social impact a company can have. The Global Impact Investing Network (GIIN) published its annual survey 2019, revealing that USD 239 billion has already been already invested in impact investment assets. Since the survey only represents a sample of investors, the network estimates that the actual amount in the global impact investment market could be closer to USD 502 billion.
What’s even more exciting is that according to the same survey, the annual growth rate of impact investing assets over the past four years has nearly reached 17 percent, which is significantly bigger than the growth rate of traditional forms of investments.
In this article, we will look at:
- The reasons why sustainability is important
- What returns you can expect from impact investing
- The problem of greenwashing in sustainability
- How you can become an impact investor
But let’s first define what impact investing is.
What is impact investing?
At Yova, we define impact investing as investing money with the expectation of generating a social impact as well as a financial return. Using our free online platform, you can create an investment portfolio that is consistent with your values and beliefs, while still working towards growing your wealth.
We focus on companies that champion impact topics such as renewable energy, transport of the future, disease eradication, gender equality and more. You can also specify your NOs: such as no weapons, no animal testing, no meat, no pesticides, and no nuclear (Join our waitlist here to be among the first to try Yova when it launches in Germany).
Whatever topics you pick, our algorithm makes sure your investment is diversified, which spreads your risk exposure between different countries, currencies, industries and other factors. Every Yova strategy is designed to generate long-term returns, in line with the growth of the overall stock market.
You can learn more about how we approach impact investing and our 24 impact topics in our whitepaper ‘Creating a Better World Through Investing’. And if you want to find out more about our approach and why sustainable investing is the way to go, take a look at our article on the impact investing definition where we explore this topic further.
Why is sustainable investing important?
For a moment, imagine a world where companies care about human rights, gender equality, and the environment. Products are produced under fair circumstances and the end of poverty is near.
According to the 17 United Nations sustainable development goals (UN SDGs), it’s possible for this future vision to become a reality no later than the year 2030.
Is it too good to be true?
Currently, there are many incredible projects actively working towards achieving the UN’s SDGs. But there is a catch: just over a third of the required sum of USD 3.9 trillion for these Sustainable Development Goals is funded. As a result, private capital is needed to cover some of the costs associated with reaching these goals.
This is where you come in.
Sixty-two percent of those that answered The Global Impact Investing Network’s 2019 survey stated that they track at least some of their impact investment performance to the United Nations Sustainable Development Goals. As an aspiring investor, the power is fully in your hands and you can decide for yourself what kind of impact you want your money to have.
Since you are probably already a very conscious customer, who tries to buy seasonal and regional vegetables to reduce carbon dioxide emissions, you probably don’t want your money invested in companies that drive the coal industry or greenhouse gases, right?
According to a recent report from Greenpeace, that is exactly what is often happening if you leave your money in your bank account or pension scheme.
The alternative is channeling your money into impact investing.
By investing in companies that are helping to solve major problems in the world, you can help our planet to reach the United Nation Sustainable goals – and most importantly, you can do that without having to compromise on your economic returns. There are many examples of for-profit companies that are making a tangible difference in the world – including Veolia, a French multinational that builds clean water infrastructure in developing nations, and Vestas, the Danish wind energy innovator, which is helping to accelerate the switch to green energy.
Discover more about how we approach sustainability investing here.
What returns can I expect from impact investing?
These days, many investors look for both a good rate of return, as well as a way to align their money with their personal beliefs and values.
When thinking of impact investing, some people still worry they will not yield a high return from their investment if they focusing on investing money in sustainable or socially responsible companies.
But, as countless studies have shown, many sustainable and socially responsible investments actually outperform conventional strategies.
ROI of impact investing
According to the GIIN Annual Impact investing 2019 survey, equity impact investors typically realised a gross return of between 6.9 to 16.9 percent, depending on the risk and location of their investment.
This compares to standard equity investments where investors could expect an average annual return of 10% on the S&P 500 stock exchange, or much less on European stock markets (for Swiss investors, this return would be even lower, as the growth of the S&P 500 does not take into account the decreased value of the USD against CHF).
By the way: if you’re interested in learning more about the topic of return on ecological investments and why some assume that it will have an advantage due to climate change in the medium term, check out our interview with Dr. Dorothea Baur.
Beware of greenwashing
Another concern is the actual meaning of impact investment.
As more investors are becoming interested in investing in socially responsible companies, “impact washing”, also called greenwashing, is getting more popular.
Impact washing happens when a fund or a company tries to portray themselves as impact-focused in front of consumers and investors, when in reality, their company has done little to move away from harmful products and practices. We explain such a scenario with the example of Alibaba in this article.
In our article on the impact investing definition, we show you step by step how we measure how impact-focused companies are. This way, you can be sure every company in your impact investment portfolio meets your values and objectives.
In case you’re interested, The Transition Pathway Initiative introduced a tool that was designed by and for investors to help assess companies’ carbon management. Investors can use this tool to see how well companies are preparing and reacting to climate change.
Almost anyone can impact invest now
For a long period of time, impact investing was only available for the wealthy customers of private banks, with more than CHF 1 million in assets to invest.
But, luckily, that’s no longer the case. At Yova, we’ve digitised the methods of private banks, to create investment and savings strategies with as little as CHF 2,000.
With sustainable investing, you can become the person who believes in a company that builds cars without emissions or who empowers women to have equal opportunities to become leaders.
Investment power of the new generation
What about the new generation of investors that we talked about in the beginning? Who are they?
We are talking about the so-called Generation Z. Most of Gen Z is people born between 1996 and 2010. They are succeeding millennials and it is predicted that Gen Z will become the majority of customers in 2020 as they will make up 32 percent of the world’s population.
When it comes to investing, Gen Z representatives care about transparency and smart solutions that respect their values. They also feel empowered about planning their financial future.
While the general consensus is that Gen Z will be worse off financially than generations before them, there are some early signs that they are smart savers. As it’s revealed in an article by The Independent, a third of Gen Z already have savings worth equivalent of CHF 1,200. Forty percent of them believe saving is “fundamental” for their future.
With CHF 60 – 70 million passed on as inheritance in Switzerland every year, this generation will sooner or later receive assets from their parents they will want to reinvest. Since Generation Z is driven by their desire to have a personal impact, we predict this money will shift away from traditional investments, and into sustainable investing options.
Rise of Fridays for Future
This motivation for having a personal impact has been increasingly showcased in demonstrations for climate justice, which happen every Friday in cities around the world. The movement was started by the Swedish climate Activist Greta Thunberg, who launched the initiative called Fridays for Future in 2018.
In Switzerland, the first Fridays for Future demonstration took place in Zurich on December 14th, 2018. Since then, these demonstrations have become the biggest protest movements in recent history, with as many as 60,000 participants all over the country. It’s not only students – many adults have joined the demonstrations, to demand political leaders implement solutions to prevent further global warming and climate change.
So, did it actually take a new generation to make us all aware of the climate crisis?
In her speech at the House of Parliament in London on the 23rd of April 2019, Greta Thunberg said, “We, the children are doing this to wake up the adults. We, the children are doing this to put your differences aside and start acting as we should during a crisis. We, the children are doing this because we want our hopes and dreams to return.”
Nobody can deny that this generation cares about their future and a change in the system.
How you can become an impact investor in Switzerland
We can’t promise that the world will change within a few days. But if social impact investing continues to grow rapidly, there is a great chance that new milestones of the United Nations Sustainable Development Goals can be reached within a few years.
At Yova, we created an algorithm that generates personalised impact investment portfolios, based on your individual hopes for the work, as well as your risk preferences.
Since the algorithm works in real-time, it only takes a few minutes to get your free investing strategy, where you’ll see every company we recommend for you.
We will create a portfolio that includes 30 – 40 companies spread across different countries, currencies and industries. If you don’t like any of the companies in your portfolio, you have the choice to remove them. With every change you make, our algorithm recalculates you portfolio, ensuring it’s optimised for the right balance of risk and return.
You can read more about this here.
An example of what your Yova Impact Investing strategy can look like
Join our waitlist here to be among the first to try Yova when it launches in Germany.
Advantages of sustainable investing with Yova
At Yova, we believe the future holds big things for us and the generations that will follow on this beautiful planet.
To make this a reality, investing in socially responsible companies is an important step to take. We have designed our app to meet the needs of a new investment generation that cares about usability and impact investing.
Investing with us, there are no unpleasant surprises or hidden fees. You pay one, easy to understand fee, and that encompasses every cost associated with your investment.
No matter how old you are, why you think sustainable investing is important or if you have already have experience in investing – we here at Yova make it possible to find a perfectly tailored investment strategy for you.
Curious? Join our waitlist here to be among the first to try Yova when it launches in Germany.