Impact Investing: Our Definition5 min read / by Tillmann Lang
Traditionally, philanthropy was for changing the world, and growing your wealth was a separate, almost polar-opposite activity. But this traditional approach to investing ignores the fact that companies are huge catalysts of change (for good, and for bad). That’s where impact investments come in.
Think about it. CO2 emissions, equal opportunities, human rights, corruption… Companies are in the driver’s seat on these issues. When you become an impact investor with Yova, you get to avoid the worst offenders, and choose to invest in the companies actively creating the changes you want to see.
Sounds simple, right? Well, the definition of impact investing varies wildly in the finance industry. Let’s take a look…
What is Impact Investing?
“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
How does Yova define impact investment? We have adopted the definition of The GIIN (Global Impact Investing Network), the world’s leading authority on impact investing.
“Impact investments are investments made with the intention to generate social and environmental impact alongside a financial return.”
We’ve developed a method for everyday investors to grow their wealth with an investment portfolio that is designed to contribute to a better world as a whole. At the same time, our customers receive an investment that is customised to their interests and values, risk optimised & diversified, and designed to generate market-rate returns. You directly own each stock in your name (no complex financial products between you and your money).
How does impact investment work?
It’s a common misunderstanding that financial returns have to be sacrificed when you opt for impact investing instead of a traditional investment. Although there are many impact investors who do prioritise ‘impact’ over financial gain, it is possible to invest with impact without compromising returns.
Our approach is to help our customers investing in the stock market. Your personalised strategy is designed around the companies you care about – but we also make sure it is well diversified so that the performance runs as close to the stock market as possible.
Our focus is on large companies, which by nature are powerful game-changers. At the same time, they are reliable investments.
We have strict criteria for assessing a company’s suitability in your portfolio:
|Impact Areas||Renewable energy, electromobility, Internet of Things and medical technology are just a few of the themes your investment can include. We always ask: Does this company make the world a better place through the products and services it creates?|
|Cradle-to-Grave Impact||We analyse the entire lifecycle of a company’s products: from raw material extraction, manufacturing, distribution, use, repair and maintenance, as well as disposal or recycling.|
|Exclusion Criteria||We allow people to exclude companies that have interests in nuclear, tobacco, alcohol, weapons, and warfare. This way you ensure your savings don’t contribute to these industries. It’s your investment and your choice.|
|ESG Score||We are looking 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 with 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.|
Impact Investing: What returns can I expect?
A growing body of evidence indicates that impact investment 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 returns, 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 is that, when a stock portfolio is built around strong environmental and social practices, the financial risk attached to things like environmental fines, fluctuating oil prices, corruption and human rights scandals is mitigated.
What companies should I invest in?
First, you pick the sustainable and socially responsible investment themes that are most important to you.
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. 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.
Then, we custom-build your investment strategy based on your interests, passions, values, and hopes for the future. We also consider your risk profile and financial objectives.
This strategy is free and non-binding, but it’s packed with value. You’ll see the exact list of stocks and bonds we recommend you invest in, as well as the currency split, and expected returns.
|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 cyberattackers 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.|
|Pandora||Hugely popular amongst teenagers and young adults, this jewellery brand is committed to ethical manufacturing. Its Thai employees enjoy competitive salaries, double wages for overtime, free meals, insurance, and parental leave.|
|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.|
This is just a small sample of the hundreds of companies that are available in the Yova impact investing Switzerland universe. The companies we recommend will be tailored to your personal interests and values.
Can my money really make a difference?
You might wonder if your money can have any impact on a company worth billions. But it really can. In fact, there are impact investing trends where a swell of people invests in a company, with the specific goal to make dramatic changes in the way that 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: it’s merely 14 years old, yet it leads the electric car space. Without investors believing in it, Tesla couldn’t have grown into what it is. It’s also possible that, without Tesla’s innovations, other car producers would not have felt pressure to evolve their offering.
When you invest your money with Yova, you are also directly buying shares in each company. As a part-owner in these companies, you have the right to attend their general assemblies and vote on major strategic decisions. Since many investors don’t take up that right, this gives you real potential to influence the direction of the companies you invest in.
We’re also working on making it possible for you to vote online from the comfort of your own home (stay tuned!).
How can I become an impact investor?
The first step is to get your personalised impact investing strategy – it’s fee and non-binding. You will see the exact list of stocks we recommend for you, based on you and your vision for the world.
It takes approximately 5 minutes and is completely obligation-free. From there, you can adapt and tweak your portfolio to fit your needs, before going ahead to the next step.
If you have a Yova strategy already, login to view it here.
If you’ve accepted your strategy, congratulations! By investing, you not only support a company’s success, you become part of that success… growing your savings and having a positive impact on the world at the same time.