Dhe efforts of the EU to create a comprehensive framework for a sustainable economy, the so-called taxonomy, have preoccupied the wealth management industry like hardly any other topic for years. After all, one of the key starting points is the financing of companies and projects, in which the industry naturally plays a key role.
This supports the efforts to be able to help shape the process – not least because one fears rigid guidelines. This would mean that investors would no longer be able to freely decide what to invest in. This would prevent the issue of sustainability in companies and replace it with a simple check-off of regulatory provisions, argues the German fund association BVI. Ultimately, the change to more sustainable investments would lose momentum.
The BVI has therefore launched a proposal for a new fund vehicle. The basic idea of the “European Impact Fund” (EIF) is very simple: It is a balanced mixed fund that essentially follows the European legal framework UCITS (Ucits) for open-ended investment funds. Half of an EIF should contain European “impact bonds”, ie bonds that the EU issues to finance green and social projects; on the other hand, other securities from EU companies, at least 40 percent of them in securities of small and medium-sized companies, whereby financial companies should be explicitly excluded. Up to 10 percent of the fund’s volume could be put into closed-end funds, such as private equity funds.
This is intended to pursue three goals, says Markus Michel, statistics expert at the BVI. “First, sustainability can be promoted through the development of private capital. Second, more private money from deposits and insurance would flow into the targeted promotion of small and medium-sized enterprises. Thirdly, the contributions of the member states are increasingly available for crisis situations, such as the current corona pandemic. “
While one half of the fund volume is more likely to provide the “impact” on sustainability, so that other considerations played a role there, the other half should primarily bring the return. One of the things that can be discussed is whether, in the end, a balanced relationship must always be maintained in an impact fund.
Invest in projects
Ultimately, the goal is to offer private investors who are not yet engaged in sustainable products a stable product with a satisfactory return that is also interesting enough for institutional investors to meet their sustainability quotas. “Impact bonds have the advantage that investors can see into which specific sustainable projects their money is flowing. That will be decisive for the marketing success, ”says Michel.
Each “Impact Bond” finances exactly one project. This is more credible than global sustainability bonds, as they are currently being issued by individual member states, because they are more tangible, similar to a microfinance fund. A success of the EIF could bring the volume of these bonds back from the previously modest 72 billion euros. Above all, however, it is about providing food for thought in the sustainability debate. According to reports, this has already been achieved both in the industry and at the EU level.