A Rethink is Necessary
Why investors should invest rather in sustainable projects
Introduction
In a world increasingly shaped by sustainable changes, investors are seeking opportunities not only to achieve financial returns but also to exert a positive influence on the environment and society. This article is aimed at investors who have yet to engage with Environmental, Social, Governance (ESG) projects and highlights the fascinating advantages of Impact Investing.
I commence with a brief introduction to the concepts of “Regenerative Finance (ReFi),” ESG, and Nature Assets, providing you with a clear insight into the realm of sustainable financial practices. However, that’s not all — I take you on a journey, exploring how the targeted application of blockchain technology can support these projects, promoting transparency, efficiency, and trust.
My goal is not only to present to you the opportunities and potential of ESG projects but also to inspire you to actively contemplate how your capital can create not only prosperity for yourself but also a positive impact on the world around you. Therefore I invite you to engage, understand, and consider how your future investments can make a difference. Welcome to the world of Impact Investing — where profits and positive impacts on the environment and society go hand in hand.
Understand ReFi and ESG
Impact Investing
“Impact Investing” refers to an investment strategy where capital is deliberately directed towards companies, organizations, and funds that aim to achieve positive social or environmental impacts alongside financial returns. The primary objective of Impact Investing is to bring about a positive change in social and environmental issues while simultaneously generating financial profits.
This is based on the 17 SDGs (Social Development Goals) adopted by the United Nations in the Agenda 2030. Investors in the field of Impact Investing pursue a dual return: financial returns and positive effects on the environment or society. This investment strategy goes beyond traditional return metrics and incorporates ESG criteria (Environmental, Social, Governance) to ensure that investments adhere to ethical and sustainable principles.
Examples of Impact Investments could include investments in renewable energy, educational institutions, clean water projects, social enterprises, or technologies contributing to addressing global challenges. Impact Investing has gained significant prominence in recent years as more investors seek ways to align their financial resources with their desire for social and environmental change.
Blockchain and Nature Assets (NA) vs. Real World Assets (RWA)
In the world of sustainable finance, much attention is often devoted to Real World Assets (RWA), and for good reason. Assets like real estate or infrastructure projects undoubtedly play a significant role in our economy. However, there is currently a less recognized yet equally crucial category of assets that tends to be overlooked — Nature Assets.
Nature Assets, or natural assets, represent the natural resources and ecosystems that power and support our planet. These include forests, oceans, water sources, biodiversity, and much more. The crucial distinction from Real World Assets is that Nature Assets not only hold economic value but are also of paramount importance for maintaining the balance of our environment and the health of our planet.
Despite their immense significance, Nature Assets are often underrepresented and regrettably sidelined in investment discussions. It is vital to promote the sustainable management and protection of these assets to secure the future of our planet.
This is precisely where blockchain technology comes into play, especially in conjunction with AI and Machine Learning. A blockchain, as a decentralized and tamper-resistant database, fosters transparency, trust, and efficiency in managing natural assets. When coupled with IoT sensors, real-time information about Nature Assets can be captured and instantly recorded on the blockchain, allowing for precise tracking and monitoring of environmental impacts and resource utilization.
Blockchain technology is gaining increasing prominence in today’s world, as it not only ensures data integrity but also facilitates the automation of contracts and processes. When it comes to managing and safeguarding Nature Assets, blockchain offers a solution that aligns the interests of investors, environmental advocates, and society as a whole.
Successful investments already made
Impact investing has produced numerous successful projects worldwide that not only achieve social but also environmental improvements.
Here are some examples of companies that have been financed through impact investing principles and have achieved success in terms of regenerative outcomes for the environment, social impact, and investor returns:
Unilever
In 2018, the company launched a $1 billion impact investment fund, the Unilever Sustainable Living Plan (USLP) Impact Fund. The fund invests in companies that are helping Unilever achieve its sustainability goals, such as reducing its environmental impact and improving the lives of the people it touches.
The impact: The USLP Impact Fund has helped Unilever to reduce its greenhouse gas emissions by 43% and increase renewable energy use to 29%. In addition the fund has also helped Unilever to improve the lives of over 1 million people, including by providing access to clean water and sanitation, supporting small businesses, and empowering women.
Investor returns: The USLP Impact Fund has also generated strong financial returns for investors, with an average annual return of 20%.
Goldman Sachs
In 2010, the company launched the Goldman Sachs Social Impact Fund, which invests in companies that are creating positive social and environmental change. The fund has invested in a wide range of businesses, including renewable energy companies, microfinance institutions, and education companies.
The impact: The Social Impact Fund has helped to reduce carbon emissions by 10 million tons and provided access to clean water to 1 million people. Further the fund has also helped to create over 100,000 jobs and provided microfinance loans to over 1 million people.
Investor returns: The investor has generated an average annual return of 8%, which is above the average return for traditional investments.
African GreenTec (ATG)
The ESG project “African GreenTec (ATG)” aims to provide sustainable and clean energy in Africa and is a pioneer in offering affordable and clean energy in Africa. The German founders have set themselves the goal of supplying electricity to three million people in Africa who currently live without it. To achieve this, they developed the “Solartainer,” a mobile container that can be set up within two days and is expandable.
The impact: AGT has electrified villages and towns in Niger and Mali, giving 25,000 people direct access to electricity, with more than 100,000 benefiting from it. The project contributes to 11 United Nations Sustainable Development Goals (SDGs) and has indirect impacts on other aspects such as providing opportunities for female entrepreneurs or bridging gaps between investors in Germany and markets/labor in Africa.
Investor returns: The investment offers a return of 5.50% per year. The investment is structured as an annuity loan, with a term of 5 years, starting on March 31, 2023, and ending on March 31, 2028.
Regenerative Facts
Banks have also realised that investments in sustainable and regenerative projects are worthwhile. Bloomberg recently announced that the World’s Biggest Banks Made $3 Billion on Green Debt in 2023. Banks are already generating higher profits from renewable projects today than from oil and gas.
And more good news to follow here:
- According to a study by the Global Sustainable Investment Alliance (GSIA), global sustainable investments amounted to US$ 35.8 trillion in 2022, a 28% increase from the previous year.
- According to a study by the World Economic Forum (WEF), 72% of companies have identified sustainability as one of the most important strategic focal points for their company (Germany 70 %).
- The number of companies that have signed up to the UN Global Compact has increased from 500 in 2000 to over 15,000 in 2023.
- The number of sustainable financial products has increased from 200 billion US dollars in 2000 to over 35 trillion US dollars in 2023.
- According to a United Nations (UN) study, 193 of the 195 member states have adopted national sustainability goals. Germany has set itself the goal of becoming climate neutral by 2045.
- According to a study by the market research institute Nielsen in 2022, 66% of consumers worldwide say that sustainability is important to them when making purchasing decisions.
- In a study by the consulting firm McKinsey in 2022, the market for sustainable products is expected to grow to 12 trillion US dollars by 2030.
Summary
It’s reassuring to see that an increasing number of investors today are open to aligning financial gains with positive impacts on the environment and society. The technologies available today enable us to catalog and manage even highly complex assets, such as water, forest reserves, and CO2, with precision. The insights gained from this enable us to better understand the need for societal change and action.
Impact Investing within the framework of Regenerative Finance (ReFi) creates a win-win situation. It generates financial returns as well as positive social and environmental outcomes aligned with the United Nations’ 17 Social Development Goals (SDGs). Successful projects, like those by Unilever and BlackRock, demonstrate the potential for aligning profit and impact, while sustainable investments are gaining momentum globally. It’s time to reconsider investment strategies for a sustainable future.
This article was written as part of the Frankfurt School Blockchain Center’s Scholar Program “ReFi-Talents 2023”. Thank you for allowing me to be a part of this fantastic team of talents, mentors and organizers.
Remarks
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About the author
Ralf Emanuel is a passionate entrepreneur. He founded two companies in the IT industry after managing large-scale IT projects since 1995. After developing and operating several critical enterprise applications in the tourism and finance sectors, he now specializes in IT consulting, focusing on digital transformation, cybersecurity, and blockchain while advising companies on their strategic direction.
