For a better world.

Impact Investment. Investing money in a financially lucrative way and at the same time generating a measurable social return is considered the supreme discipline of sustainable investing. "It is particularly interesting to implement this in all asset classes," says Sönke Niefünd, Co-Head Competence Center Sustainability and Head of the Hamburg office of Merck Finck Privatbankiers AG. He explains how this is achieved.

"The board of a foundation recently asked us a very special question," says Sönke Niefünd, Co-Head Competence Center Sustainability at Merck Finck Privatbankiers: "Is it possible and sensible to implement my entire asset allocation with Impact Investments? Niefünd thought for a moment. Dann he said: "Yes. And yes."

Impact Investing is regarded as the top class among sustainable investments. "It is intended for all those for whom it is not enough to invest only in companies that cause no or as little damage as possible. Instead, they want to achieve something positive with their capital investments and create added social or ecological value," he explains.

It is not so long ago that only a very small circle with extremely high ethical standards pursued such a goal. Wealthy families met in networks, arranged club deals and invested together outside the stock exchange in start-ups, deren Geschäftsidee a small financial return, but a great social impact promised.

Meanwhile, this idea is attracting more and more interest. "In 2011, only 8.7 billion euros were invested in diesem Segment in Europe. By 2019 it was already 200 billion. This makes it the fastest growing area at allen Anlageklassen," Niefünd informs. The exciting question now is: "How can what began in a small niche in private markets be implemented in the future in a meaningful way for a large clientele at den Kapitalmärkten?

The challenge, sagt Niefünd, starts with the definition - what is impact investment? "The boundaries to philanthropy are often blurred. We bei Merck Finck have three basic rules. First, we want to achieve a financial return that is at least as high as with other investments. Second, there must be a positive social and environmental impact that can be clearly measured."

This is precisely why "impact" has so far played a role on the capital market, especially in interest rate investments. Green bonds pool capital to finance clearly defined projects. And microfinance funds promote development by granting microcredits in Schwellenländern. "Impact" is verifiable here because issuers and funds explain in detailed reports what is achieved with investors' capital", erklärt Niefünd (read also the story "Twice as successful" in the 02/2019 issue at www.private-wealth.de). Thinking ahead, it will be interesting to apply this idea to all asset classes - real estate, shares, even private equity and hedge funds.

In the real estate sector, according to Niefünd, this is already working quite well today under the heading of "Green Real Estate". "A property that is built sustainably and ecologically has a much lower ecological footprint. And the providers also provide clean reporting on this - CO2 footprint, energy efficiency, positive influence on the yield with future rising energy prices.

In the stock markets, the issue is just beginning to attract more attention. Impact funds are being created, investors are asking specifically for investment ideas. Niefünd sees four major challenges in the selection of appropriate companies. How do I determine the impact? How large must the share of am Umsatz be that really achieves impact? How can mit Impact shares be put together to form an efficient portfolio? And: How can the impact be proven?

"The answers to these questions require intensive communication between asset owner and banker", macht Niefünd clear. The basis for the definition of impact can be, for example, the development goals of the United Nations (see below).

Compromises are needed when it comes to how much impact is required. "The more purist the demand, the smaller the investment universe and the more difficult it is to achieve the financial return target. On the other hand - if a company only reduces its CO2 emissions or only a small sub-sector achieves a positive social impact - that would be too little for me. Das needs to be discussed in detail."

Impact Investment thus becomes a voyage of discovery - for investors and bankers alike. "For us, no funds but only individual securities are suitable - because only then can we provide clear evidence of the impact through our own research.

The shortlist would include zum Beispiel sustainable food producers who already report exactly what, how and where they produce. They can also use surveys to show how the consumption of their products affects obesity in society. "The software industry is also interesting," Niefünd reflects. "Because measuring the impact is crucial, deren Aktien is a kind of indirect impact investment. After all, software and apps are what make proof of impact possible for many providers.

The next big topic for the future will then be impacts in the area of private equity and venture capital. To get the small, fascinating growth stories into the portfolio with which the impact idea started. "And why shouldn't there also be impact hedge funds - which focus on differences in share price performance between companies with a very large or small impact?"

The prerequisite for this is that the companies themselves provide more information in the future. "Both investors and politicians will put pressure When we talk again in ten years' time, every company will have impact reporting in addition to the sustainability report," says Sönke Niefünd confidently, but then pauses briefly: "Ten years? Come on - maybe in five years Impact Investment will already be the gold standard of investment". ®

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// What is actually social impact?

In 2015, the UN defined 17 development goals, which are to make a dignified life possible and preserve the natural foundations of life. These SDGs (Sustainable Development Goals) range from poverty reduction to gender equality and climate protection.

"Today, this is a first standard for measuring impact. But, of course, every investor can also work out his own criteria", erläutert Sönke Niefünd and advises: "Stay pragmatic, but stick with Ihren Wertvorstelllungen. After all, it is precisely the great advantage of impact investment that it does not reflect the mainstream.

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Special publication:

Merck Finck Private Bankers

www.merckfinck.de