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How ethical investing platforms aim to make the world a better place

Blog
5 October 2022
How ethical investing platforms aim to make the world a better place

Money is one of the main forms of support. Most projects get off the ground thanks to funding from people who believe in them. However, not everyone has access to the same opportunities. Some initiatives fight tirelessly to improve society but do not receive sufficient resources. To turn this situation around, ethical investing platforms are born.

Traditionally, investors have shared a single goal: to make as much profit as possible. In doing so, they did not value the consequences of their actions on the community.

Often, the organizations to which they lent money were embroiled in scandals or committed irregular activities. But even their most reprehensible behavior, such as polluting the environment, had little impact on the opinion of their investors. As long as it produced income for them, all other factors were irrelevant.

But investing means supporting. Anyone who puts their money into companies that, for example, harm the environment, is also participating in this, albeit indirectly.

Fortunately, society is already reacting. Many people and institutions have taken a stand, demanding more responsibility from companies. And in response to these demands, ethical investing platforms have been created.

What are ethical investing platforms?

Economic profit does not have to be at odds with social benefit. This is the maxim that characterizes ethical investing, which makes profitability compatible with the contribution to the community.

Many projects seek to bring about change in the world, but they do not have the necessary support. They are initiatives that promote labor insertion, fair trade, renewable energies, waste recycling, solidarity, sustainability, education, culture... Their scope of action is very broad. In short, they all seek to care for the environment and create a society with equal opportunities.

Their main goal is not income generation. For this reason, they have been repeatedly excluded from the traditional banking system. Fortunately, ethical investing platforms have established channels to support them and give them a chance, while ensuring investors' profit.

Although their core objective is not to make a profit, this does not mean that they are not viable. On the contrary. These types of companies also seek to be profitable, as this is what allows them to guarantee their survival.

Their value proposition lies precisely in the combination of these two aspects. If they pursue profitability at all costs, they are unethical. If they only seek social or environmental benefits, they are not companies.

More equitable distribution of opportunities

This new model demands greater accountability from companies. Financing appears as a mechanism for building the desired society: fairer, more sustainable, and more inclusive. It is a vehicle for improving the living conditions of the planet and its inhabitants. For this reason, when it comes to deciding in which organizations to deposit their money, savers attach increasing importance to corporate responsibility.

In many cases, the ethical investing platforms themselves are responsible for selecting the projects to be promoted. They search through all those in need of resources and create a directory that they make available to investors.

They no longer seek alliances with multinationals, but rather support people who want to bring about change in their communities. This brings more value, as the investor can see firsthand how their investment has a direct impact on citizens.

This is one of the main benefits of ethical investing platforms: you remain in control of the course of your money at all times. The level of transparency is very high since it is published to which items the savings are allocated.

This system implies an ethical use of money, understood as a means and not as an end in itself. It is a lever for transformation. An instrument with immense power, which is placed at the service of society.

A global scenario calling for change

During the last century, voices critical of the traditional finance system intensified. Their discourse began to gain strength. They demanded more responsibility from companies because they understood that bad investment of money could be very harmful.

These protests were not in vain. Gradually, more and more people were focusing on the need to make a positive impact through finance. And they insisted on excluding all companies whose actions harmed society. This change in mentality led to the birth of ethical investing platforms.

Microcredit was one of the first initiatives. This system, created by the economist Muhammad Yunus, won him the Nobel Peace Prize in 2006. He aimed to reduce poverty in developing countries. In these regions, many citizens do not have access to traditional banks, which perpetuates their poor economic situation.

Microcredits work in a very simple way. They are loans granted to low-income people to encourage them to start a business or a profitable activity. In this way, they collaborate in their communities and can lead a more dignified lifestyle.

Their duration is short and the financial amounts are small, so they soon became very popular.

How ethical investing platforms aim to make the world a better place

Other ethical investing platforms

Support during the earliest stages of projects is crucial to give them the boost they need to establish themselves in the market. Crowdfunding and crowdlending are two ethical investing mechanisms created for this purpose.

In the first alternative, the investor does not seek his benefit but makes a disinterested donation. However, both parties can agree to receive compensation in exchange for their help. Today there are an infinite number of online platforms that facilitate crowdfunding, giving visibility to initiatives in search of resources.

This system has a variation, known as crowdfunding equity. It is the preferred option for those investors who do wish to obtain a certain return, as they receive a percentage of the company's share. However, it involves a certain level of risk, since they will only obtain benefits if the project is successful.

In crowdlending, the saver makes a loan, which he will later recover. And their profit is generated by the interest agreed upon between the parties. The operation is very similar to that of bank loans. As many small companies could not access them, this means was created, in which the capital is contributed by individuals.

Within this modality, crowdfactoring emerged, in which investors finance the organizations' invoices, obtaining a return for it. To increase the security of transactions, everything is done through specialized platforms.

The current situation in Spain

Ethical investing platforms are becoming increasingly important. More and more businesses and savers are turning to them. But how has Spain received this new financing system?

The Ethical Finance Barometer makes annual radiography of the state of the sector. Published by the Observatory of Ethical Finance, the 2020 report shows a favorable scenario. During that year, more than 2.45 billion euros were raised from savings, of which 1.72 billion went to financing transformative projects.

This translates into some 190,000 users of ethical banking, a figure that has been increasing over the years. By sector, the environmental sector attracts the most resources, followed closely by the social sector.

The inability of companies to repay is one of the main concerns of investors. However, the default rate in ethical entities is 1.5%. Three points less than in conventional entities, where this figure rises to 4.5%.

The solution proposed by Inversa

Little by little, ethical investing platforms are gaining ground. And Inversa has decided to lead this wave, making a strong commitment to crowdfactoring. The value proposition of the firm, dedicated to online invoice financing, is based on connecting savers and companies to promote the real economy.

It is a solution based on transparency, flexibility, and agility. This is very attractive for investors, who collect interest in advance. In addition, they get their money back within 30 to 180 days.

As part of its commitment to the community, Inversa only publishes projects that have a positive impact on its environment. The process is very simple: companies upload their invoices to the platform, where they are verified by experts. These experts give them a cost and profitability based on their credit rating, determined by trusted third parties, in an exercise of transparency. Only those businesses with sufficient credit quality to meet their obligations are accepted. They then disclose them to their investor community.

When the saver decides to finance one of the invoices, he will charge interest in advance. The company then receives the amount, from which fees and interest are deducted. In addition, 10% of the total amount is retained, which is released when the customer pays the amount and the money is returned to the investor.

Through this method, to date, they have already managed to finance more than 2,200 invoices, with an average return of close to 6.65%, clear proof of their effectiveness.

Prioritizing the positive impact on society

In recent years, new forms of alternative financing have been constantly emerging. Alongside them, other means of investing are appearing, but not all of them contribute to protecting the environment or creating a more egalitarian society. Some of these systems even lend themselves to a high level of speculation, without having a positive impact on the community.

Ethical investing platforms, on the other hand, focus on those projects that do strive to build a better world. They aim to balance the scales since traditional banking institutions do not provide them with sufficient opportunities to develop.

Solutions such as Inversa not only guarantee profitability for investors but also give wings to transformative initiatives.

Alternative Financing crowdfactoring crowdfunding crowdlending ethical investing ethical investing platforms investors
Inversa Team
Inversa Team

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