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FINANCE & INVESTING | 2.2.2023
Crowdfunding platforms enable companies to raise money for exciting projects in an uncomplicated way. With crowdfunding, the required financing volume is generated collectively by many people. They then either receive a fixed return or can even participate directly in companies through their investment. Thanks to promising, high-yield projects, investors can also make their crowdinvesting sustainable. The EU's ECSP Regulation (Regulation for Commercial European Crowdfunding Service Providers) also simplifies cross-border investments' realisation. Here you can find out how to invest sustainably on crowdfunding platforms and what benefits the ECSP regulation has in store for you as an investor.
Sustainable investing describes a form of investment in which values such as environmental protection or social concerns are primary considerations in addition to economic interests. The sustainability of the financial products and the form of investment do not have a negative impact on the return. Instead, the two pillars form a positive symbiosis in many respects.
Projects or companies often benefit from a sustainable and future-oriented approach, which in turn has a positive impact on investments. When it comes to products, prospective buyers today increasingly attach importance to the environmental aspects directly associated with the product. The same applies to social factors such as local working conditions or the generation of production materials.
Those who invest sustainably today have a clear advantage. Companies with a sustainable focus are experiencing high demand and are showing exponential growth.
Today, investors can invest in sustainable projects in a variety of ways. In addition to sustainably designed funds or ETFs, crowdfunding platforms offer a range of interesting and sustainable investment projects.
Thanks to crowdinvesting, it is now much easier to realise sustainable projects around the globe. A wide variety of projects exist around the world, for example, for a clean water supply or other environmental protection projects - as well as regional projects for the generation of environmentally friendly energy. These often involve crowdinvesting in solar parks or financing wind turbines for sustainable energy supply.
However, sustainability is also becoming increasingly crucial for projects in other sectors. In addition to purely economic interests, the focus here is increasingly on environmental protection, ethical responsibility and social action. Consequently, criteria are often summarised under ESG (Environment, Social, Governance investment criteria).
Today, as never before, investors are interested in how an investment works and what influence the money invested has. Anyone who invests money today wants to make an investment in their own interests and have their individual concerns represented at all times. With crowdinvesting, money can be invested sustainably in order to support specific projects and plans.
The advantage for investors is twofold. On the one hand, personal values relevant to sustainability are represented in the form of financial investment. At the same time, crowdfunding platforms also enable an interesting return in the sense of the investor. Low minimum investment amounts enable investors to diversify their investments and thus contribute to spreading the risk within the crowdfunding investment over various projects.
Today, crowdfunding plays an increasingly important role in sustainable investments worldwide because sustainable projects become feasible in the first place thanks to crowdinvesting. Finding financiers for sustainable and forward-looking projects is often challenging. Traditional banks are not always familiar with the matter. They often refuse to finance sustainable projects despite a solid business plan. On crowdfunding platforms, on the other hand, the investors decide in which area they want to invest money sustainably. In addition, for some time now, new opportunities have arisen in the field of crowdfunding to invest sustainably throughout the EU, even outside national borders. This is made possible by the ECSP Regulation.
The regulation, which came into force in November 2021, simplifies cross-border crowdinvesting within the EU. Thus, the ECSP Regulation enables crowdinvesting according to uniform rules across national borders. But before that, legislators had spent more than two years deliberating on the European Crowdfunding Service Provider Regulation. Existing rules were harmonised, and regulations simplified. At the same time, the protection of investors was increased and harmonised.
For crowdfunding platforms to take advantage of the ECSP regulation, a one-time licence must first be applied for and granted. The respective national supervisory authority is responsible. We at Invesdor applied for the required licence early on and were pleased to be the first crowdfunding platform in the German-speaking region to receive positive approval. The Austrian Financial Market Authority (FMA) granted the ECSP licence as the responsible country supervisor. The license is linked to far-reaching conditions and requirements.
Crowdfunding platforms and finance-seeking companies must meet certain criteria and are obliged to disclose a great deal of information. Corporate governance and risk management of crowdfunding platforms will also be regulated. National supervisory authorities will be given extensive powers, for example, to monitor crowdfunding platforms' functions and crowdinvestment processes. On the other hand, investors will be pleased about increased investor protection and will be able to make sustainable investments even more securely across countries in the future.
The ECSP Regulation offers significant advantages for crowdfunding platforms, companies and investors alike:
At the same time, there is a uniform legal framework with standard, cross-border requirements for all participants. The ECSP Regulation applies to issues of up to EUR 5 million in 12 months per company.
The ECSP Regulation provides another special feature for additional transparency in crowdfunding: the company must issue a separate information sheet for each financing offered on crowdfunding platforms. The Key Investment Information Sheet (KIIS) contains all important information. This includes information about the company as well as about the specific crowdfunding project itself. In addition, the information sheet must be available in the official language of the Member State in which the financial product is marketed.
Investing money in sustainable investments with a good return does not have to be contradictory. On the contrary, crowdfunding platforms allow you to invest funds sustainably in a growing market in times of the energy transition and increasing environmental awareness and to advance meaningful projects together.
The EU regulation on crowdfunding platforms opens up additional opportunities for you: You can now invest sustainably throughout the EU and thus take advantage of a wide range of investment opportunities. At the same time, a uniform legal framework protects you as an investor across borders. It allows you to receive the information you need to make your decision, including risks.
The information contained herein is not meant to be, and it shall not be interpreted as investment advice or a recommendation and investors must neither accept any offer for, nor acquire, any securities unless they do so on the basis of the information contained in the applicable investment material of a target company. Investing in securities of unlisted companies is associated with high risk.