Sustainable investing VS. impact investing


Although the economic, social and environmental goals of both types of investing are the same and complement each other, their processes and applications differ. While the former emphasises measurement, the latter focuses more on maximising a positive impact. 

Climate change, social and economic equality, healthy growth and full employment, access to resources and infrastructure, strong institutions, peace and justice. These are some of the principles covered by the United Nation’s 17 Sustainable Development Goals (SDG) to create a more sustainable planet. To achieve these targets, the UN calculates that by 2030 between 5 and 7 billion dollars per year will be needed, while to achieve climate neutrality –i.e. the non-emission of polluting gases– a further 3 to 5 billion dollars per year will be required. 

In the quest to achieve this growth based on a triple bottom line –economic, social and environmental–, authorities and businesses are driving sustainability by applying ESG criteria and promoting projects that generate long-term returns in vulnerable communities. Put more simply and in the words of Quyen Tran, BlackRock Impact Investing Director, “ESG investing assesses how a company works and the impact investing this company produces or offers”. 

ESG analysis as part of the basic analysis

Sustainable investing or ESG investing therefore goes beyond the efficient management of natural resources and implies that organisations in general will perform a series of actions focused on the environmental conservation of the planet, social equality and good corporate practices. Actions that seek to benefit all citizens, aiming to measure and quantify from a regulatory perspective. 

In this regard, when identifying which companies to add to portfolios, investment managers apply ESG metrics together with fundamental analysis (exhaustive analysis of companies in terms of financial ratios, management team, competitive advantages and entry barriers). According to estimates from Goldman Sachs, ESG assets under management in investment funds totalled 2.1 billion dollars last year. In Spain, sustainable investing accounts for approximately 380 billion euros, according to the Sustainable Investment Fund, SpainSif.

BBVA has included sustainability as a strategic priority, and previously promoted sustainable financing in 2007, when it participated in the first issuance of a green bond by the European Investment Bank. A decade later, it took part, together with other banks, in the Katowice Commitment, an agreement to adjust loan portfolios to the Paris Agreement climate change goals. This purpose was reaffirmed in 2019 when it signed, with another 206 banks, the Principles for Responsible Banking, and in 2021, as the co-founder of the NZBA (Net-Zero Banking Alliance), a banking alliance with net zero emissions. In figures, this means BBVA has committed up to 300 billion in sustainable financing through to 2025.

Social and economic impact

For its part, impact investing seeks to respond to social or environmental challenges by providing the necessary levers for a community to become self-sufficient over time, either equipping it with water management infrastructure which, by extension, can be used for agricultural and/or livestock development; schools, to offer a better future for new generations; or transport, to promote its inclusion, for example. It is imperative that the impact can be measured

According to the global report on impact investing 2022: Sizing the Impact Investing Market, produced by the non-profit organisation Global Impact Investing Network (GIIN), the volume of resources allocated already exceeds one billion dollars, specifically, 1.16 billion worldwide. In Spain, the latest available data of the Advisory Board for Impact Investing (SpainNab) puts the volume of investment at 2.4 billion euros.    

Locally, globally

Beyond the sustainability actions of many companies, there are newly created companies or novel projects that have the ESG principles in their DNA. This is the case with the Nikin sustainable fashion brand, which has made sustainable investing its leitmotiv: it allocates part of each sale to tree-planting programmes, always produces in Europe based on short supply chains and environmentally friendly transport, and selects materials and manufacturers “in line with green, economic and social criteria”, as it explains on its website. As a result, the Swiss company created in 2016 works hand-in-hand with an eco consultancy. Not surprisingly, the UN considers the textile industry to be the second most polluting industry on the planet, and any initiative with ESG criteria leaves a positive mark. 

In the international sphere, another example of a circular economy with a social and economic impact can be found in Kenya, where the company Ocean Sole transforms 50 tonnes a year of used sandals into artistic objects that seek to raise awareness of marine pollution and sustain impoverished communities in the country. 

Paraphrasing the investment magnate, Warren Buffett: “Someone’s sitting in the shade today because someone planted a tree a long time ago.”