Commitment to sustainability to attract more investment
Traditional investment philosophy has focused on maximizing gains and minimizing losses, following basic principles of risk and return management. However, the contemporary view of investments has evolved significantly. It is not only about financial return, but also about bringing benefits to the social and natural environment. The modern approach extends the notion of "value" beyond financial returns, highlighting the importance of being active and responsible contributors to society and the environment. Investors are increasingly recognizing their role as beneficiaries of these systems, prompting them to adopt a more beneficent role in their investment decisions. This shift underscores that the true value of an investment should be measured as much by its economic return as by its positive impact on the world.
★ AWARD-WINNING PROJECTS TO BE INSPIRED BY
TRAVELING FOR HAPPINESS
Social Impact Award 2023
CAIXABANK HOTELS & TOURISM
Awarded for its "Projects with Soul" initiative, which represents the financial institution's commitment to social and labor insertion and the environment thanks to three of its own initiatives: INCORPORA, REUTILÍZAME and DUALIZA.
Our success is not only the result of our individual actions, but also of the support of those around us and of what surrounds us. Our progress is based on a harmonious society and a healthy environment, a planet with certain conditions that guarantee our well-being, the only place where we can continue to live our lives, where we can continue to do business. This understanding broadens the definition of success in the investment world, integrating sustainability and collective well-being as key elements.
This change in mentality has motivated many investors to add additional factors to their financial decisions. They are prioritizing criteria that go beyond simple financial gain. They are opting for investments that, in addition to being lucrative, have a beneficial effect on society and the environment and, above all, contribute to a lasting and meaningful legacy. As mentioned, this paradigm focuses on maintaining and promoting optimal conditions for both the planet and the community, crucial aspects for the sustained generation of wealth. We seek to leave behind a legacy that endures and surpasses us; a legacy that stands out for its positive, innovative and inspirational character. While many endowments seek to ensure an economic legacy for future generations, it is critical to consider the environment in which this legacy will be enjoyed. What good is an economic legacy if it does not preserve a favorable world in which to leverage it?
Bill Gates' famous phrase "There will be two types of businesses in the 21st century: those that are on the Internet and those that no longer exist" could be adapted to the new times in the following way: There will be two types of business, those that are sustainable and those that no longer exist. It is precisely Bill Gates, known for his philanthropy, who is particularly committed to driving innovation in business models that constitute real solutions against climate change. He is also leading the way in encouraging other investors to look beyond profitability, promoting an investment vision that values positive environmental impact as much as financial success.
One of the most notable investment vehicles associated with Bill Gates in this area is Breakthrough Energy Ventures (BEV), a fund he helped found. Breakthrough Energy Ventures is a venture capital fund that invests in emerging companies with the potential to significantly reduce greenhouse gas emissions. It focuses on a variety of key sectors for the energy transition, including electricity, transportation, agriculture, manufacturing and construction. It aims to fund and support startups that develop innovative technologies capable of scaling and commercializing solutions to reduce carbon emissions and effectively address climate change. Bill Gates' strategy is notable for its long-term approach, recognizing that revolutionary technologies can take decades to develop and deploy. Bill Gates and the other coalition members are committed to providing not only capital, but also strategic guidance and access to influential networks to accelerate the progress of these critical technologies.
The investment world is undergoing a significant transformation, with a growing conversation around impact funds. These funds, designed to generate not only financial return but also positive social and environmental return, are gaining popularity. Even more traditional fund managers are joining the shift, designing new vehicles that are more aligned with impact.
The investment thesis and the importance of reporting
The universe of impact funds is diverse and encompasses a wide range of investment approaches. Some adopt a generalist approach, while others specialize in specific niches, focusing their strategies on the development of technological solutions aimed at mitigating climate change (climateTech) or innovating in the infrastructure essential for the transition to more sustainable energy sources. Also noteworthy are the funds dedicated to the blue economy, which invest in companies committed to the conservation of the oceans, free of harmful emissions and plastics, and rich in biodiversity. On the other hand, social impact funds seek to generate positive change in critical areas such as inclusion, health and education, often aligning with the Sustainable Development Goals (SDGs). This variety offers investors the opportunity to contribute to building a more sustainable and equitable future, while pursuing financial returns. In addition, the role of reporting in impact investing is critical in this type of fund. Investors demand transparency and detail in the variables reported, not only to verify compliance with impact objectives, but also to ensure that the business models in which they invest contribute effectively to the solution of specific problems. This rigorousness in the analysis of information makes it possible to assess whether companies maintain their commitment to impact without deviating from their goals and whether managers assign equal importance to environmental and social performance as they do to economic performance.
Numerous investors request participation in oversight committees in order to closely monitor impact metrics. In addition, they insist that managers' compensation be linked to the achievement of impact objectives, thus reinforcing the commitment to sustainability. This strategy ensures an alignment of interests, promoting that investment management not only pursues financial results, but also prioritizes positive social and environmental impact.
The role of regulation
This paradigm shift is more rapid depending on geography; Europe dominates the impact investing market with nearly 5,000 funds available to institutional and retail investors, representing 77% of the global total and controlling $2.276 trillion, accounting for 82% of all sustainable assets worldwide. Regulatory policies in Europe have created taxonomies and classifications in order to reward and encourage sustainability in investments. This regulatory evolution is part of a broader strategy to combat climate change and promote sustainable practices across the economy, known as the European Green Pact. The regulatory framework established by the EU not only rewards and encourages sustainability in investments, but also seeks to establish a common language and clear criteria for identifying sustainable economic activities. In this way, it aims to increase investment in green technologies and projects, contributing to the transition to a greener and more climate-resilient economy throughout the value chain. In addition, growing evidence of the effects of climate change, plastic pollution and biodiversity loss has forged a more aware society. This awareness has given rise to more informed and engaged investors, who are looking for solutions to these problems where they can invest.
The tourism sector
The tourism sector presents a significant dual challenge. On the one hand, it is an activity with a considerable impact on the environment and society, due to its very nature. Tourism is currently recognized as one of the industries with the greatest environmental impact. This sector facilitates the massive movement of people, originally distributed evenly around the world, to specific destinations. Such movement often exceeds the capacity of local destinations, consumes extensive amounts of energy and water, emits greenhouse gases and produces large volumes of waste, profoundly affecting the lifestyle of local communities. The adoption of sustainable tourism practices is essential not only to protect the environment, but also to maintain the viability and durability of an industry that is intrinsically dependent on the health of its environments. In fact, tourism is one of the most polluting industries, closely linked to high-emission sectors such as construction, transportation and power generation.
Tourism and hospitality investors are increasing their commitment to practices that reduce environmental impact, such as building sustainable infrastructure, managing resources efficiently and including local communities in the tourism value chain. These practices not only capture the attention of a growing number of eco-conscious travelers, but also contribute to the preservation of tourism destinations for future generations to enjoy. They also ensure that tourism continues to be a vital source of income and foster sustainable development for host communities. Therefore, investment in sustainability is consolidating as a key strategy for generating lasting value and ecological responsibility in the tourism and hospitality industry, leading more and more businesses in the sector to integrate sustainability into their business model.
In Spain, the tourism sector still faces significant challenges in achieving a prominent position in environmental, social and governance (ESG) rankings. Despite growing awareness and sustainability initiatives, more robust and consistent measures need to be implemented. This includes the widespread adoption of sustainable practices at all levels of the industry, from small businesses to large tourism corporations. The effective integration of policies that promote environmental sustainability, social well-being, and ethical and transparent governance is essential for Spain to position itself as a leader in sustainable tourism worldwide. The development of these strategies will not only enhance the country's reputation in ESG rankings, but will also ensure the long-term viability of the tourism sector, which is crucial to the national economy.
A promising future
Impact investing in Europe has shown significant growth, clearly showing a shift in the mindset of investors towards more sustainable and responsible options. According to Research and Markets, in 2023, the global impact investing market grew from $420 billion in 2022 to $495 billion, with a compound annual growth rate (CAGR) of 17.8%. This market is expected to reach $955 billion by 2027, maintaining the same growth rate. This highlights the growing acceptance and demand for investments that seek not only financial returns but also positive social and environmental benefits.
Specifically in Europe, almost 99% of millennial investors have expressed interest in sustainable investing, underscoring a strong trend of new generations of investors adopting impact theses in their decisions.
Investing to solve the major challenges we face as humanity represents the most significant action we can take as investors. It is essential to direct capital toward innovative business models that offer genuine solutions. Companies focused on solving these vital challenges are not only destined to generate billion-dollar markets, but also play a key role in our survival. The need to act is imminent, we have no time, hence innovation, and its promotion through investment, plays a key role in influencing the entire value chain across all industries. Investing with a clear vision and firmness allows us to build the most valuable legacy both for ourselves and for the future of the next generations.