This article was originally written for our Swiss market, it may contain Swiss references.
“A new wave of investors is using impact investing to address some of the greatest challenges of our time — from climate change and water scarcity to lack of access to health care, education, and affordable housing — with the intention of also generating a financial return.”
– Judith Rodin in her book The Power of Impact Investing
When it comes to investing money, some people think their only option is to invest money into funds or a portfolio managed by a bank. As an investor, the problem with this approach is that you never really know where your money ends up.
Even in sustainable or socially responsible funds, it’s not unusual for oil companies and junk food manufacturers to be in the portfolio. In fact, some leading sustainability funds include companies such as Nestlé, Total SA and Saudi Arabian mining (at the time of publication, Blackrock’s iShares MSCI EM SRI UCITS ETF and iShares MSCI Europe SRI UCITS ETF each contain these stocks).
Luckily, the rise of a new investment approach called impact investing enables investors to back companies whose values match your own. This means empowering companies that are supporting causes such as lowering CO2 emissions, offering equal pay for all genders, or championing human rights.
Investing into such companies matters tremendously because while it’s pleasant to think of individuals enacting change on a personal level, the truth is that often, corporations have more substantial power for actual change on a larger scale.
To help you understand impact investing better, we will discuss the most common questions people ask our team:
- What is our definition of impact investing
- How does impact investing with Yova work?
- What returns can I expect with impact investing?
- What companies should I invest in?
- Can my money really make a difference?
- How can I become an impact investor?
What is our definition of impact investing?
The actual definition of impact investing varies wildly in the financial industry. At Yova, we adopted the definition by The GIIN (Global Impact Investing Network, the world’s leading authority on impact investing):
In fact, we adopted this definition as our mission statement when Yova was founded, and it helped us develop a method allowing everyday investors to grow their wealth with an investment portfolio that is designed to contribute to a better world.
How does impact investing with Yova work?
When you invest with Yova, your investment strategy is customised to your interests and values. You pick your impact topics, and we recommend companies that are actively creating the changes you want to see. You control exactly what companies you invest in, by adding and removing companies directly in your Yova dashboard.
At the same time, we make sure that your sustainable investment portfolio is risk optimised, diversified and designed to generate market-rate returns. Importantly, you directly own each stock in your name (no complex financial products stand between you and your money).
We have strict criteria for assessing a company’s suitability in your portfolio, and to make sure it fits our definition of impact investing. Here’s an overview of the assessment process that Yova-approved companies go through:
|Handprint||Renewable energy, transport of the future, circular economy and disease eradication are just a few of the themes your sustainable investment can include. We always ask: Does this company make the world a better place through the products and services it creates?|
|Footprint||We analyse the impact a company has through its operations and manufacturing. This includes how they treat their workers, the number of women they have in senior leadership positions or on the board of directors, as well as how much carbon the company emits.|
|Exclusion Criteria||We allow you to exclude companies that have interests in meat, nuclear, tobacco, animal testing, alcohol, weapons, coal & gas, and pesticides. This way, you ensure your savings don’t contribute to these industries. It’s your investment and your choice.|
|ESG Score||We look at how a company’s ESG score fits with the values that are important to you (things like pollution, tax avoidance, and human rights). More about how we cut through companies’ PR spin here.|
|Risk||Your investment with Yova is designed within the level of risk you are comfortable with. You invest in large companies that are listed on major stock markets. This makes your returns more predictable in the long-term and means you can easily withdraw your investment if you need to.|
Understandably, some investors are wary about greenwashing in sustainable investing. At Yova, transparency is the foundation of our approach to both sustainable and social impact investing. We’re committed to disclosing the criteria we use to select companies for your investment – and you always see every single company we recommend you invest in before you make any commitment.
If you want to learn more about our approach, find more information in our whitepaper or reach out to our friendly team – we’re always happy to answer your questions.
Impact Investing: What returns can I expect?
It’s a common misunderstanding that financial returns have to be sacrificed when opting for impact investing instead of a traditional investment. Although some impact investors prioritise ‘impact’ over financial gain, it’s possible to invest with Impact without compromising returns.
That’s why our approach streamlines the process, so customers can start investing in the stock market according to their personalised, sustainable investing strategy. While we do focus on sustainable and social impact when creating your portfolio, we also make sure that it’s well-diversified, and designed to follow the performance of the overall stock market.
Unfortunately, we can’t predict exactly how high your return will be from impact investing (no asset manager can). With that being said, there is a growing body of evidence which indicates that impact investing can drive stronger returns than a conventional investment portfolio:
- A Royal Bank of Canada review of more than 40 major studies found no evidence that socially responsible investing resulted in lower investment returns.
- GIIN’s 2017 Annual Impact Investor Survey found the majority of respondents achieved market-rate gains, and 91% were achieving financial returns that met or exceeded their professional expectations.
- A Harvard University meta-analysis (a statistical analysis combining the results of multiple studies) determined that applying social responsibility criteria to assess funds has no negative impact on the risk-return ratio.
One theory about why impact investing works is that, when a stock portfolio is built around solid environmental and social practices, the financial risks attached to things like environmental fines, fluctuating oil prices, corruption and human rights scandals are mitigated.
Sounds great, right? In the next section, we’ll explain which companies follow our definition of impact investing, and how you can start investing sustainably.
What companies should I invest in?
You might be already convinced that impact investing is the way to go, but which companies are actually the right fit for you personally?
For instance, maybe you’re concerned about the effects of CO2 emissions and global warming. Perhaps you’re horrified about human rights scandals at major clothing brands. And you might be keen to support companies that champion equal opportunity, or those that are innovating in particular fields – medical technology, renewable energy, or electromobility, for example.
Fortunately, when you invest with Yova, you don’t need to know all the companies that fit your criteria by heart. Our engine builds a portfolio based on your interests, passion, values and hopes for the future automatically.
To give you an example, here are a few companies that follow our definition of impact investing and might become part of your portfolio as well:
|Infineon||A German semiconductor manufacturer that supplies parts for the world’s first “eyes off” driverless car. It’s also breaking new ground to protect against cyber attackers in the age of quantum computers.|
|Xylem||This company develops technology to purify and transport water. Unclean water is one of the leading causes of sickness and death in the developing world, and Xylem’s Essence of Life program helps the world’s poorest people gain access to clean water.|
|Beyond Meat||A peer-reviewed Life Cycle Analysis conducted by the University of Michigan concluded that a Beyond Meat burger used 99% less water, 93% less land, generated 90% fewer Greenhouse Gas Emissions, and required 46% less energy when compared to a conventional quarter-pound beef burger.|
|Orsted||A Danish electricity company, which has transformed its business from fossil fuels to renewable energy. It has a goal to only offer green energy by 2023, which will represent a 96% emission reduction.|
Of course, this is just a small sample of the hundreds of companies available in the Yova impact investing universe. Each portfolio contains companies that we recommend for sustainable investing, tailored to your values and interests.
Can my money really make a difference?
Now, despite all this talk about impact investing, you might wonder if your money can have any impact on a company worth billions.
The answer? Yes, it can.
In fact, there are already a lot of examples in which people have created a tangible social impact through investing. In many cases, these impact investors have been able to trigger dramatic changes in the way a company operates.
For example, a group of gun safety activists acquired substantial shares in weapons manufacturer Ruger, in order to put pressure on the company to monitor violence associated with their guns and develop safer products.
Similarly, look at Tesla. Founded only in 2003, it already leads the electric car space. Without investors believing in both the product and the future it helps to build, Tesla couldn’t have grown into what it is today. It’s also possible that, without Tesla’s innovations, other car producers would not have felt pressure to evolve their offering.
By investing your money sustainably with Yova, you’re also directly buying shares in each company. We are also working on a solution that will enable you to vote online at shareholder meetings through the Saxo Bank (stay tuned!).
How can I become an impact investor?
Yova will soon be available for EU customers. Join our waitlist here to be among the first to try Yova when it launches in Germany.
You will get your personalised Impact Investment strategy and see the exact list of stocks we recommend for you, based on your values and your vision for the world. From there, you can adapt and tweak your portfolio to fit your needs before going ahead to the next step.
Did I mention it only takes 5 minutes to complete, is free and totally non-binding?
If you’ve accepted your strategy and want to start sustainably investing, congratulations! By investing, you not only support a company’s success, but you become part of that success growing your savings and having a positive impact on the world at the same time.