Investment themes & strategy

Impact investments are the future

Impact investments are the future


For a long time ‘investing in a good cause’ was not regarded as an investment activity in the strict financial sense, but was assigned to the area of charity. The reason for this is the lack of an intention to generate returns. But any tension between good purpose and yield is only illusory and impact investments help bridge the gap.

For a long time ‘investing in a good cause’ was not regarded as an investment activity in the strict financial sense, but was assigned to the area of charity. The reason for this is the lack of an intention to generate returns. But any tension between good purpose and yield is only illusory and impact investments help bridge the gap. What was a niche at the beginning of this decade is turning into one of the fastest growing investment segments.

First, to the characteristics of impact investments. These are investments that, in addition to seeking a financial return, are also expected to have a positive impact on the environment or society. It is important that the targeted ecological and/or social effects are explicitly part of the investment strategy. According to the definition of the Global Impact Investing Network (GIIN), impact investments must meet the following requirements:

  1. Intentionality: there must be a declared intention to achieve a clearly defined effect.
  2. Causality: the desired effect must be directly linked to the investment.
  3. Measurability: whether or to what extent an effect has been achieved must be measured on the basis of clearly defined key performance indicators (KPI).
  4. And finally, reporting: the impact must be reported transparently on a regular basis.

Now, what are the effects that are to be achieved?

Renewable energies Today’s consensus is that impact investments have to pay into at least one – ideally several – of the 17 Sustainable Development Goals (SDG) of the United Nations. These goals, to which the UN committed itself in 2015 with a view to achieving them by 2030, cover a broad spectrum: from combating poverty and securing food, health and education via gender equality, sustainable water and energy supply to combating climate change and promoting peace.

The question of returns remains: there are certainly (groups of) investors who are willing and able to forego returns on account of the good causes they are striving for. However, this does not apply to the majority of investors. The good news, therefore, is that in a GIIN survey the majority of impact investors – more than 90 percent – stated that their return expectations had been met or even exceeded. This shows that:

Impact-oriented investments can close the gap between good cause and good returns!

At present, the market for such investments is still comparatively small: according to GIIN estimates, by the end of 2018 the market size was just above 500 billion US dollars worldwide. If one adds Green Bonds, which are not included in this figure due to their character as a corporate-financing instrument (and not investment) and due to an often somewhat weaker fulfilment of the intentionality and causality criteria, one arrives at slightly more than twice this amount, 1.1 trillion US dollars. This is less than one percent of the total global equity and bond market capitalization. However, the volume has grown rapidly in recent years. And even more importantly, the potential is immense. The UN itself assumes that in order to meet the 17 SDG by 2030, a mid-double-digit trillion amount of investment will be necessary. It is impossible for the public sector to do this on its own – private-sector commitment is indispensable.

Due to this growth potential, it is essential to set high standards for ‘real’ impact investments, like those mentioned earlier in order to minimize the risk of ‘impact washing’ (or ‘green washing’). In such a dynamic environment, there is a danger that traditional investments could simply be labelled as “impact investments” in order to benefit from their positive attributes and good image. This risks disappointment on the part of investors; in a worst-case scenario a newly established asset class might be discredited from the client's point of view. In order to prevent this, no compromises should be made in the selection of investment objectives and in the criteria of measurability and transparency.

How can this be implemented in concrete terms?

SustainabilityA few examples: Investors can invest in equity and debt capital from projects and companies that have a variety of environmental and/or social impacts. In addition to standard financial analyses, the due diligence of the investment objectives should include the elaboration of KPIs against which the effects can be measured on an ongoing basis, as well as agreements on the form and frequency of their provision. The range of possible projects is wide: from microfinance and social housing to sustainable agriculture, forestry and energy efficiency.

From the perspective of European institutional investors subject to Solvency II regulations there is an additional interesting facet: although the AIIS exclusively looks at activities which have a demonstrated and measurable impact, it does not aim to maximize the impact when searching for investment targets. For the latter, a focus on projects in emerging market would be a better option, as the greatest ecological and/or social improvements can usually be achieved there. For regulated investors, however, such investments are often out of the question due to high solvency-capital costs. With its focus on impact investments in OECD countries, investors therefore aim for a risk-adjusted return that is also attractive from a solvency-capital perspective. With a term of ten to twelve years, long-term impact investments can also make a contribution to asset-liability matching.

To support the urgently needed impact-oriented investments in emerging markets it is also important to mobilize the capital of private, regulated investors such as insurance companies or pension funds. A viable way for this could be public private (investment) partnerships, often known in the industry as ‘blended finance’. Partnering with public institutions reduces the investment risk and solvency-capital costs for private investors. One example of such a project is the ‘AfricaGrow’ initiative announced in Germany in mid-November. Within this initiative, a private investment vehicle can invest money from a government organization into African private equity and venture capital funds. These in turn finance African small and medium-sized enterprises and start-ups, thus promoting sustainable ecological and social development.

Some may now ask what investment opportunities are available to private investors. Due to their characteristics – closed-end funds, long maturities – the vehicles described above are not open to direct investments from private investors. However, another established bond segment is available to this group of investors: Green Bonds. These are bonds issued by companies or public institutions to finance well-defined ecological projects and which are subject to strict transparency and reporting requirements: the Green Bond Principles of the International Capital Market Association ICMA. Here therefore, too, highest emphasize is put on measurability and accountability, in the interest of investors.


To sum up: looking at impact investments, an immense worldwide financing need is being met by an increasing willingness to invest, not only to generate adequate returns but also to make a positive impact. This is happening at a time when more and more companies are recognizing the need to assume responsibility for society as a whole, in addition to pursuing their own interests and those of their shareholders. Impact considerations are therefore likely to be increasingly integrated into every investment decision. Looking forward, impact investments can therefore impact investing itself, with the potential to become the investment segment of the future.

Barbara Rupf Bee

Barbara Rupf Bee
Head of EMEA at Allianz Global Investors

A version of this article first appeared in Börsen-Zeitung (7 December 2019, in German).


About the author

Barbara Rupf Bee

Barbara Rupf Bee

Head of EMEA

Barbara Rupf Bee is Head of Europe Middle East and Africa (EMEA) at Allianz Global Investors, and a member of the firm’s International Management Group and Global Distribution Committee.

Active is: Promoting sustainability

Investing for a sustainable future

Impact investments are the future


The United Nations Sustainable Development Goals (SDGs) reflect a global consensus on the most urgent environmental and societal issues. A new crop of investments built around the SDGs are helping investors to direct capital into potential growth companies, while also addressing the biggest issues facing the planet.

Key takeaways

  • An increased focus on sustainability issues is fuelling investor demand globally and has led to an explosion in sustainable investment options
  • Investment strategies that seek to contribute to the UN’s Sustainable Development Goals are becoming more common
  • The SDGs are a series of UN-defined targets for addressing environmental and social issues, reflecting a global consensus of where action is most needed
  • SDG strategies may appeal in particular to a new generation of investors who expect their investments to deliver a real-world benefit, along with a financial return
  • Staying focused on long-term goals while managing a range of risks helps performance, especially during times of stockmarket volatility
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