Throughout the last decades, the global society has increasingly been debating about our responsibility to act in a sustainable and socially acceptable manner, both from a private and a corporate point of view. Over the course of this very discussion, governments, organizations and numerous institutions began to, among others, advocate sustainable energies such as wind and solar power in order to counteract the destruction and global warming of our planet. Since then, also a large part of the companies around the globe have changed their self-concept, moving away from the conception of reckless businesses that are solely being after the maximum profit in everything they do, and striving after the perception of caring yet economically successful enterprises that support both their employees and their (social) environment. As a matter of fact, the so-called corporate social responsibility has become a major aspect on how potential employees or clients assess a company’s value nowadays. And as part of this development many enterprises – first and foremost banks and other financial institutions – have, at least to some extent, adjusted their investing behavior as well, representing social awareness and creating additional value through a wide variety of social and/ or sustainable investments. The concept of impact investing – providing a social value alongside a financial return – has, therefore, become a familiar face in the financial sector and might be a considerable help in realizing global sustainability objectives, e.g. the Sustainable Development Goals of the United Nations.
This analysis imparts a holistic introduction into the relatively young yet comprehensive topic and ultimately investigates the question to what extent impact investing could play a leading role in the future of investing. This paper is divided into another 5 chapters that are organized as follows: Chapter 2 deals with the definition and classification, but also with contemporary issues of Impact Investing. Chapter 3 provides a general framework for defining and developing a personalized impact portfolio profile, whereas Chapter 4 makes an approach to model the latter while referring to traditional static modeling approaches. Chapter 5 attends to the empirical performance of both SRI and impact portfolios in comparison with “traditional” benchmarks. Finally, chapter 6 concludes and, on the basis of this research, gives a future prospect.
Inhaltsverzeichnis (Table of Contents)
- 1. Introduction
- 2. Defining Impact Investing
- 2.1. What is Impact Investing?
- 2.2. Classification & Core Characteristics
- 2.3. Spectrum of Impact Investments & Case Example Global Warming
- 2.4. Contemporary Issues & Challenges
- 3. Framework for an Impact Portfolio
- 3.1. Organizational Structure
- 3.2. Impact Mission, Financial Parameters & Impact Policy Statement
- 3.3. Constructing a Portfolio Target Profile
- 4. An Approach to Portfolio Modelling
- 4.1. Assumptions Regarding an Investor's Utility
- 4.2. Portfolio Maximization Problem: One Risky Asset
- 4.3. Portfolio Maximization Problem: Risky Asset Portfolio
- 4.3.1. Mean-Variance-Frontier, CAL & Two-Fund-Theorem
- 4.3.2. Modelling the Optimal Portfolio
- 4.4. Implementation of Constraints
- 4.5. Conclusion
- 5. Empirical Evidence on Performance
- 5.1. Socially Responsible Investing (SRI)
- 5.2. Impact Investing
- 5.3. Conclusion
Zielsetzung und Themenschwerpunkte (Objectives and Key Themes)
This work aims to provide a holistic introduction to impact investing, exploring its definition, practical implementation, and performance. It examines the framework for constructing an impact portfolio, applying portfolio modeling techniques, and reviewing existing empirical evidence on its performance.
- Definition and characteristics of impact investing
- Framework for building an impact investment portfolio
- Portfolio modeling approaches for impact investments
- Empirical evidence on the performance of impact investments
- Contemporary challenges and issues in impact investing
Zusammenfassung der Kapitel (Chapter Summaries)
1. Introduction: This introductory chapter sets the stage for the entire paper, outlining the scope and structure of the investigation into impact investing. It provides a brief overview of the topic and explains the approach taken throughout the analysis. The chapter likely establishes the importance of understanding impact investing within a broader financial context and prepares the reader for the subsequent detailed exploration of its key aspects.
2. Defining Impact Investing: This chapter delves into the core concept of impact investing, providing a clear definition and outlining its key characteristics. It differentiates impact investing from other investment approaches, such as socially responsible investing (SRI), and likely explores the various classifications and types of impact investments. The inclusion of a case study on global warming provides a concrete example of how impact investing can address significant social and environmental challenges.
3. Framework for an Impact Portfolio: This chapter focuses on the practical aspects of constructing an impact investment portfolio. It details the organizational structure required, outlining the essential elements such as the impact mission, financial parameters, and impact policy statement. A crucial component is the development of a portfolio target profile tailored to the investor's risk tolerance and desired impact goals. This chapter bridges the theoretical definition with practical implementation.
4. An Approach to Portfolio Modelling: This chapter tackles the complexities of portfolio modeling for impact investments. It starts by outlining assumptions regarding investor utility and then develops models for portfolio maximization, considering both single and multiple risky assets. The discussion likely involves concepts such as the mean-variance frontier, the capital allocation line, and the two-fund theorem, integrating these established financial theories into the specific context of impact investing. The chapter explains how constraints can be implemented into the model to align with the specific goals of the investor.
5. Empirical Evidence on Performance: This chapter presents empirical data and analyses the performance of impact investments. The analysis likely compares impact investing with Socially Responsible Investing (SRI) to highlight differences and similarities in their performance. This chapter will likely involve statistical analysis and potentially compare different methodologies and datasets to offer a comprehensive assessment of existing evidence regarding the performance of impact investments, potentially touching upon issues such as risk and return.
Schlüsselwörter (Keywords)
Impact investing, Socially Responsible Investing (SRI), portfolio optimization, risk and return, impact measurement, financial modeling, social and environmental impact, sustainable investing, portfolio construction, mean-variance analysis.
Frequently Asked Questions: A Comprehensive Guide to Impact Investing
What is the overall purpose of this document?
This document provides a comprehensive overview of impact investing, covering its definition, practical implementation, portfolio construction, performance analysis, and related challenges. It serves as a guide for understanding the key concepts and methodologies involved in this specialized investment approach.
What topics are covered in the Table of Contents?
The document covers the following key areas: an introduction to impact investing; defining impact investing and its characteristics; establishing a framework for an impact portfolio; applying portfolio modeling techniques to impact investments; and reviewing empirical evidence on the performance of impact investments. Each section includes detailed subtopics.
What are the main objectives and key themes explored?
The primary objective is to offer a holistic understanding of impact investing. Key themes include defining and characterizing impact investing, building an impact investment portfolio, employing appropriate portfolio modeling approaches, analyzing empirical performance data, and addressing contemporary challenges in the field.
What is the definition of impact investing as presented in the document?
The document provides a detailed definition of impact investing within the context of its core characteristics, differentiating it from similar investment strategies like Socially Responsible Investing (SRI). It explores the various classifications and types of impact investments and provides real-world examples.
How does the document approach portfolio modeling for impact investments?
The document outlines a framework for portfolio modeling specific to impact investing. This involves making assumptions about investor utility, developing models for portfolio maximization (considering single and multiple risky assets), applying concepts such as the mean-variance frontier and the two-fund theorem, and incorporating constraints to align with investor goals.
What empirical evidence on the performance of impact investments is presented?
The document presents and analyzes empirical data on the performance of impact investments, comparing it to the performance of Socially Responsible Investing (SRI). This analysis likely involves statistical methods and a comparison of different methodologies and datasets to provide a comprehensive assessment of the risk and return characteristics of impact investments.
What are the key challenges and issues in impact investing discussed?
While not explicitly listed as a separate section, the document touches upon contemporary challenges and issues within the context of defining impact investing and its practical implementation. These challenges likely involve the complexities of measuring impact, balancing financial returns with social and environmental goals, and addressing the specific risks associated with this type of investing.
What is the structure of the document and how are the chapters organized?
The document is structured in five chapters. Chapter 1 provides an introduction. Chapter 2 defines impact investing. Chapter 3 focuses on building an impact portfolio. Chapter 4 details portfolio modeling approaches. Chapter 5 presents empirical evidence on performance. Each chapter is summarized individually within the document.
What keywords are associated with the content of this document?
Key terms include: Impact investing, Socially Responsible Investing (SRI), portfolio optimization, risk and return, impact measurement, financial modeling, social and environmental impact, sustainable investing, portfolio construction, and mean-variance analysis.
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- Max Luca Wiegand (Autor:in), 2017, Impact Investing. The Future of Investing?, München, GRIN Verlag, https://www.grin.com/document/383587
