Frequently Asked Questions

Impact investing is an investment strategy that goes beyond simply achieving financial gain. With this investment approach, generating financial returns and realizing positive social and environmental effects go hand in hand. 

This is achieved by investing capital in companies, projects, or funds that focus on addressing social and environmental issues. 

The ultimate goal is to find a balance between making a profit and bringing about positive change.

The spectrum of impact investing categorizes investments based on their financial return and social/environmental impact. 

It ranges from investments that seek market-rate returns with positive impact to investments that prioritize transformative impact, potentially with lower or no financial return.

Impact investing encompasses a wide range of sectors and asset classes. Here are some common themes:

• Renewable energy: investments in solar, wind, hydropower, and other renewable energy projects.
• Microfinance: investments in microcredit institutions or organizations that provide financial services to underserved populations.
• Regenerative agriculture: investments in regenerative agriculture, agroforestry, or initiatives that promote sustainable and ethical farming practices.
• Healthcare: investments in healthcare facilities, medical technology, or pharmaceutical companies focused on improving access to high-quality healthcare.
• Social enterprises: investments in companies that prioritize social or environmental impact alongside financial returns.
• Sustainable infrastructure: investments in sustainable transportation, water and sanitation systems, green buildings, and smart cities.
• Affordable housing: investments in housing projects that provide affordable and accessible homes for low-income communities.
• Education: investments in educational initiatives, including schools, vocational training programs, or educational technology platforms.
• Water and sanitation: investments in clean water systems, wastewater treatment facilities, and water conservation projects, especially in developing markets.
• Impact funds: investments in impact investing funds across various sectors and themes.

These are just a few examples. Impact investing is constantly evolving and offers investors opportunities to align their investments with a wide range of social and environmental objectives.

Depending on your current financial service providers, you can, for example, work together with your bank, family office, or financial advisor.

Of course, you can also find support within the PYM network by connecting with like-minded people, our ambassadors, who are happy to share their experiences. In addition, we offer online courses on the basics of impact investing.
Finally, our Trusted Partners and Network Partners can help you on your way to making more impact.

• Direct investments in social enterprises, for example in the form of shares, loans, convertible bonds, grants, donations, and other financial instruments. 
• Impact funds, such as private equity, venture capital, engagement funds, microfinance funds, and funds of funds.
• Crowdfunding in the form of shares, loans, and donations.
• Listed securities such as shares and bonds, in the form of sustainable investment funds, Exchange Traded Funds (ETFs), or managed portfolios.
  It remains a point of discussion whether these investments can truly be called impact investments.
• Green bonds are issued to finance projects that promote sustainability and contribute to environmental objectives.
• Social Impact Bonds (SIBs) are financial instruments that finance social programs based on achieving measurable results. Investors provide upfront capital and returns depend on the success of the program.
• Philanthropy can support impact investing in the form of crowdfunding, direct donations, forgivable loans, and specialized funds (such as the Donor Impact Investment Fund).

These products vary greatly in characteristics such as liquidity, time horizon, risks and diversification, impact potential, personal involvement, and minimum investment size.
Which product suits you best naturally depends on personal preferences and circumstances.

There are a number of steps you can take when you are just starting with impact investing, and we are happy to help you with that:

1. Research what impact investing is: for example, take a PYM introductory course.
2. Discover which organizations are active in the field of impact investing: for example, through PYM's partners.
3. Meet other impact investors with a similar profile: we are happy to introduce you to our ambassadors.
4. Determine your impact and financial objectives: for example, join a PYM Impact Circle.
5. Seek advice from professionals specialized in impact investing.
6. Research and select investment options that match your goals.
7. Conduct due diligence on potential investments.
8. Diversify your portfolio to manage risk.
9. Measure the impact of your investments.
10. Adjust your strategy over time based on your results and objectives.

With impact investments, we can address the pressing problems of our planet and align investments with our personal values, while at the same time potentially generating financial returns. 

In addition, impact investing stimulates innovation and market transformation, increases stakeholder engagement, and shapes a sustainable economy.

That is certainly not necessary. If there is a healthy business model behind a social enterprise, the return can be in line with the market. Social tech enterprises, for example, can be highly scalable and at the same time extremely successful in terms of both impact and financial return. 

In some cases, philanthropy or concessionary investments are the only way to achieve the desired impact. Social enterprises for which no revenue model is possible, or where one still needs to be developed, can greatly benefit from donations, grants, forgivable loans, and patient capital.

The expected financial return cannot be viewed separately from the risk. For example, an impact fund that invests in start-ups will have high return expectations, but the risk that a number of the companies in the portfolio will go bankrupt is significant.

Impact investments can be risky due to new business models, markets, services, and products. Many social enterprises are still small and in an early stage, which is riskier for both impact and conventional investments. 

There are also several factors that can reduce the risk of impact investments: 

• Social enterprises can often count on a lot of goodwill from stakeholders and have access to grants, concessionary capital, and patient investors.
• The founders and team members are motivated by impact and not just by profit.
• Social enterprises can benefit from the general trend towards a more sustainable economy, influenced by new laws and regulations and the increased awareness of consumers and employees.

Here are a few examples to increase the impact of your investments:

• With direct investments, you can provide extra support to the social enterprise with your knowledge, time, and network. 
• Pay attention to the additionality of your investment: does your investment really make a difference?
• Can your investment unlock other investments, for example by being one of the first to invest, matching other investments, accepting more risk than others, or activating your network? This is also known as catalytic investing.
• You can share your experiences with impact investing with others and motivate them to get started themselves.
• Investing in scalable solutions that have the potential to bring about systemic change.

Additionality is the concept where the incremental effect of an investment is measured compared to what would have happened without that investment. 

To demonstrate additionality, impact investors evaluate the counterfactual scenario, which reflects what would have happened without their investment. 

They assess whether the desired effect would also have been achieved by other means or by other stakeholders. If the investment delivers results that otherwise would not have been achieved, it is considered additional.

The concept of additionality helps ensure that the positive change from impact investments is measured and made visible.

Blended finance is the strategic use of different types of capital, including concessional (subsidized) financing from public or philanthropic sources, alongside commercial investments, to address social or environmental challenges. 

This involves combining grants, concessional loans, equity investments, or guarantees with capital from the private sector to achieve both financial returns and a positive impact.

The concept of blended finance makes it attractive for commercial investors to create positive impact, without compromising the returns they can achieve.

Committed capital is the total amount of capital that investors have committed to invest in a Private Equity fund, typically over the lifetime of the fund, which can span several years.

However, investors do not provide the full committed amount upfront. Instead, they contribute capital as requested by the fund manager (Capital calls), based on the investment opportunities and capital needs of the fund.

Concessionary capital is a term that refers to investments made to finance projects or enterprises that achieve high impact, but do not deliver the financial returns that traditional investors seek.

This includes projects that address complex social problems or projects in developing countries where making a profit in the early stages is very challenging. 

The idea behind concessionary capital is that it helps to provide capital where it has the greatest impact, even if this results in lower financial returns.

Sustainable investing is an investment approach in which, in addition to financial returns, factors related to environment, society, and good governance (ESG) are also taken into account.

This involves investing capital in companies and assets that employ sustainable business practices, promote social responsibility, and demonstrate good governance. The goal is to achieve long-term financial performance while simultaneously fostering sustainability and a positive societal impact.

The idea behind sustainable investing is also that companies that perform well on ESG (Environment, Social, Governance) criteria will outperform those that do not in the long term.

The Sustainable Development Goals (SDGs) are a set of 17 global goals established by the United Nations in 2015 to guide international efforts towards a more sustainable and just future. 

The SDGs are designed to address urgent social, economic, and environmental challenges and to promote sustainable development worldwide. 

The 17 Sustainable Development Goals are as follows:

1. No poverty 
2. Zero hunger
3. Good health and well-being
4. Quality education
5. Gender equality
6. Clean water and sanitation
7. Affordable and clean energy
8. Decent work and economic growth
9. Industry, innovation, and infrastructure
10. Reduced inequalities
11. Sustainable cities and communities
12. Responsible consumption and production
13. Climate action
14. Life below water
15. Life on land
16. Peace, justice, and strong institutions
17. Partnerships for the goals

These goals cover a wide range of topics, from eradicating poverty and hunger to promoting gender equality, clean energy, sustainable cities, climate action, and more. 

The SDGs serve as a universal call to action, urging governments, businesses, civil society organizations, and individuals to work together to achieve these objectives by 2030.
Unfortunately, SDG 18 “No exploitation of animals” is missing from the official list, but fortunately, there is a lot of attention to this topic within the impact community.

Read more about the SDGs

Engagement funds are investment funds that are actively involved with the companies in which they invest. They use their influence as shareholders to increase impact and align investments with long-term value creation.

For example, if an engagement fund buys shares in a company that emits a lot of greenhouse gases, they will enter into dialogue with the company’s management to try to convince them to make their operations more sustainable. 

In this way, engagement funds not only achieve financial returns; they also contribute to positive change in the way these companies operate. Their investments are a means to exert influence and contribute to a better world. 

ESG stands for Environmental, Social, and Governance. These are factors used to assess the sustainability and ethical performance of a company or investment.

• Environmental: The impact of business activities on the natural environment. This can include issues such as greenhouse gas emissions, energy efficiency, water management, and the use of natural resources.
  
  
• Social: The way a company interacts with people, both externally (society) and internally (employees). This includes labor rights, diversity and inclusion, and human rights. 
  
  
• Governance: The way a company is governed. This includes business ethics, corruption, tax evasion, and the independence of the board. 

Greenwashing is the practice where a company presents itself as environmentally friendly or sustainable, while in reality it does not live up to those claims. The goal is to mislead consumers and investors. 

Impact funds are investment vehicles that pool capital from multiple investors with the specific aim of generating not only financial returns but also positive social and environmental effects. 

These funds invest in companies, projects, or organizations that meet predefined impact objectives. They offer individuals, institutions, and other investors a way to collectively contribute to addressing urgent social and environmental issues while also pursuing financial gain.

Impact funds can focus on specific impact themes, sectors, or regions, allowing investors to direct their investments toward areas that are close to their hearts.
The funds typically employ rigorous methods for impact measurement and reporting to track and disclose the social and environmental outcomes of their investments.

Catalytic capital is used to unlock additional investments and address market gaps to promote social or environmental impact. 

An impact investment fund can use catalytic capital to invest in a high-risk project that has the potential for significant positive social or environmental impact, but also carries greater financial risks. Through catalytic capital, the fund can demonstrate the project's potential, thereby attracting other investors to the project.

Examples of providers of catalytic capital include:

• Foundations: Foundations are an important source of catalytic capital, as they are often willing to invest in early-stage or high-risk projects that can have significant social or environmental impact.
• Public development institutions: These institutions are usually funded by governments and focus on stimulating economic development and improving social conditions. They can provide catalytic capital in the form of grants, loans, or equity investments.
• Family offices and high-net-worth individuals: Family offices and high-net-worth individuals are increasingly investing in impact-oriented companies and projects. They can provide catalytic capital in the form of direct investments or through impact investment funds.
• Corporations and corporate foundations: Corporations are increasingly investing in projects with social impact, either directly or through their corporate foundations. They can provide catalytic capital in the form of grants, loans, or equity investments.

Negative screening is an investment strategy in which certain publicly listed companies or sectors are excluded from an investment portfolio based on specific ESG criteria (Environment, Social, Governance). 

For example, an investor may decide not to invest in companies involved in the production of weapons, or companies that perform poorly in the area of human rights. 

It is one of the oldest and simplest forms of sustainable investing and ensures that investors can avoid having their investment used for practices they consider unethical or harmful.

Positive screening is the process of selecting publicly listed companies or investments based on specific positive ESG criteria (Environment, Social, Governance) or sustainability performance.

In contrast to negative screening, where certain companies or sectors are excluded, positive screening focuses on identifying companies that demonstrate leadership in ESG criteria. 

The concept behind positive screening is that it not only helps to manage risks, but also contributes to positive impact by rewarding companies that perform well in terms of sustainability.

Private Equity impact funds are investment vehicles aimed at generating both financial returns and a positive social or environmental impact. These funds invest in private, non-listed companies that focus on addressing significant social or environmental issues. 

Just like engagement funds, private equity funds are also actively involved with the companies in which they invest. They work closely with management to ensure that business performance improves, but also to measure and influence the positive impact. 

They attract capital through capital calls, where investors provide committed capital. This is the commitment they make to invest a certain amount. Distributions take place when the fund sells the investments (hopefully at a profit).

A social enterprise is a company that combines business principles and entrepreneurship with social and/or environmental objectives.

The goal of a social enterprise is not only to make a profit, but also to bring about positive change in society.
Examples include a café that provides employment for people with disabilities, or a company that offers affordable solar energy in developing countries.

Thematic investing is an investment strategy in which investments are selected based on specific trends or themes that align with particular objectives. For example, the UN Sustainable Development Goals (SDGs), or social or environmental themes, such as clean energy, gender equality, or water conservation.