Sustainability, Impact Investment and Blended Finance

Methods of finance and investments that combine financial returns with societal returns are growing ever more popular, and we see that an increasing number of our clients need professionals with experience in sustainability, impact and/or blended finance solutions. The number of firms specializing in sustainability – including captive funds and specialist divisions at asset managers, banks, pension funds and NGOs – is growing rapidly. This form of financing and investments is characterized by a significant bias towards emerging and frontier markets and adapting specific forms of investments to meet specific needs, e.g. private equity, direct loans, mezzanine.

Sustainable investing means putting capital to work while also investing in a more sustainable future. In sustainable investing, in addition to the financial returns, the impact on people, the environment and society plays an essential role. Companies are chosen not only on the basis of their financial results, but also based on how they treat the environment and their employees, and on their approach to a range of other ethical issues. Sustainable investing means avoiding controversial companies, such as producers of nuclear energy, weapons manufacturers, companies that violate human rights or use child labour, as well as those that fail to provide good working conditions for their employees.
Impact investing is the next step up from sustainable investing. All the controversial companies described above are excluded, and only organizations and projects that make a demonstrably positive contribution to the world are considered suitable to invest in, such as those active in the field of renewable energy, sustainable agriculture, social inclusion and the circular economy. The ‘impact’ in impact investment comes about because it exclusively involves organizations that are helping to create a fairer and greener society.
Blended Finance is all about combining public and private capital effectively. By using public subsidies strategically or choosing specific financing instruments with more favourable terms than those available on the market, it is sometimes possible to increase the risk appetite and/or take action in unprofitable areas. This can be useful when it comes to high-tech innovations, for instance, which need to be scaled up to series production: market-compliant loans are often not available, and blended finance can offer a good solution.