Many people are seeking to contribute to a greener, healthier and more sustainable world but question their impact. What is my real influence as an individual on the uptake of clean energy, they ask themselves. Our response would be: why underestimate yourself? There is actually a lot you can do. And the beauty is that you are not alone; the power is in the numbers of people that make these choices. In addition to making sensible and effective climate (and wallet) smart choices such as turning off lights, taking public transport, eating less meat, traveling less, you could consider investing directly into this new economy through green crowdfunding.
The growing availability of green investment opportunities through crowdfunding made me decide to write this blog, together with my brother Roel Drost.
Crowdfunding has clearly outgrown its niche since the first online crowdfunding platform was launched in 2003. Well-known examples of online crowdfunding platforms are IndieGoGo (2008) and Kickstarter (2009). Crowdfunding is booming business. The entire market has more than doubled each year and was US$34 billion in 2015. A growth to US$300 billion is projected for 2025. Only part of this is green crowdfunding, but there are quite a few good green opportunities around.
What is crowdfunding and what are the different models?
Crowdfunding is funding a project or venture by raising many small amounts of money from a large number of people, typically done on the internet.
- Donation: you provide funds without any return except the warm feeling (and recognition if you find that important).
- Reward: in return for your investment you receive something. A poster, a t-shirt, a thank you card, or discount on the product, to name a few.
- Equity: you become a shareholder in the company. There is a small chance you make a lot of money when the venture develops into a multi-million business.
- Interest: after lending money to the project you receive interest (repayment is done gradually or at the end). This model, also known as peer-to-peer (P2P) lending, is by far the most popular model. It creates a steady flow of income for the investor.
- Generation: specific for renewable energy projects: you receive kilowatts of energy, deducted from your monthly energy bill.
- Mixed: this can be a combination of any of the above.
What’s in it for you?
Each investor has its own considerations to participate in crowdfunding. Some just want a warm feeling of doing good, others (public) recognition, regular interest payments, or the chance of making a lot of money.
When it comes to green crowdfunding most people look for a balance between what their heart says and a return on the investment, in line with Porter’s concept of creating shared value. And what is wrong with making money if overall societal value is being created? For a typical project you can anticipate a return of 4-8% depending on the risk profile, quite solid in comparison to a regular savings account in the bank that yields 1% if you are lucky.
Be aware that crowdfunding is generally riskier than regular banking. Markets are regulated in some countries, but in others there are no rules, let alone guarantees. If the other party is not able to pay back the loan you will lose your money. That is why many financial market regulators advise against investing more than 10% of your net investable assets in investments sold via crowdfunding platforms. Conditions differ from one project to another, so before you invest read the information carefully. Some platforms have useful discussion sections. Diversify; spread your risk among different investments and different platforms. You may end up with a portfolio of dozens of small investments. It takes a bit more effort, but you are behind the wheel.
As per today, most green crowdfunding projects focus on environmental issues and the energy transition. These include cleantech projects related to e.g. renewable energy and smart mobility. Examples of projects are solar panels in the Netherlands (6% return), solar home systems in Zambia (5.73% return), an electric car sharing solution in Belgium (equity), biogas digesters in Kenya (6.5% return) and a wind farm in France.
You could also invest in other pressing societal issues. Some people draw up their own list of in- or exclusion criteria (sustainable energy, health benefits, environment, education, empowerment of women/girls, etc.) or even use the Sustainable Development Goals as a guiding tool. You could have invested in a plastics recycling plant or a bicycle repair shop, both in Colombia, a factory of vegetarian meat products in the Netherlands, a shipment of medicines in Ghana or salamander research in Belgium (donation).
You will encounter dilemmas. An investment in a car may empower a shopkeeper in Cambodia to sell more of her products, but it will also lead to an extra polluting vehicle on the road. The decision is yours.
Where to start?
So let’s say you have some money to spare and want to invest against a certain risk. Where to start? There are hundreds of crowdfunding platforms worldwide, but you could start exploring what is available in your country or region and in your currency. Investing in another currency means another risk, although it can be seen as an extra opportunity too. In focusing on green/sustainable crowdfunding an obvious choice is to look for platforms that sound green or sustainable. For suggestions, in addition to the examples provided above, click here and here. In addition there are plenty of green opportunities available on regular crowdfunding platforms. Some platforms have been in business for years. Others may look flashy, but are more or less dormant.
In many areas of green crowdfunding and especially when the business proposal is competitive, the demand from investors is higher than the supply. Some green multi-million projects sell out in hours. But rest assured, there is still plenty of room behind the wheel of the new economy. What is more gratifying than investing directly in the new economy while being rewarded with a proper return? Just get behind the wheel.