Frankfurt (Reuters) – Acidity test believed to be passed: companies that have relied on so-called ESG criteria in the crisis year 2020, had to reduce their profits on average less than others during the corona pandemic.
Environment, Social Aspects and Good Corporate Governance (ESG) – Companies that also comply with these criteria are simply more resilient and better positioned in the long run, explains Altaf Kassam, investment expert at State Street financial services firm. “ESG passed the crisis test and quickly became the most important element for any investor.” The popular opinion that green investments bring less returns is therefore considered outdated.
Experts predict a boom in sustainable investments in 2021. However, for investors, figuring out how “green” companies really are remains an obstacle. Many investment opportunities are now touted under the keyword “sustainable”. Given their growing importance, securities regulators in France and the Netherlands are demanding a tightening of EU rules on sustainable investment. This is to prevent erroneous information in the context of the so-called “Greenwashing”.
Stock exchange operators also want to engage in booming business through green investments and offer new indexes and data products so that investors can better classify ESG risk. In March, for example, Deutsche Börse launched a new index with an emphasis on sustainability, the Dax 50 ESG. In the US, the S&P 500 ESG stock index outperformed the regular S&P 500 index, which has increased by almost 16% this year. by a good 17 percent The ESG version excludes, among others companies that produce, for example, tobacco, and controversial goods such as land mines and chemical weapons.
CARROT AND BIT
However, a large number of companies still do not provide enough information for investors to adequately assess environmental and social factors, criticizes asset manager T. Rowe Price. “Climate change is a major challenge not only for the Earth, but also for our investment universe,” says industry expert Maria Elena Drew. Therefore, we focus on delving deeper into companies to gain a better insight into their ecological and social orientation.
“We also look like active owners,” emphasizes Jan Amerit Poser, chief strategist and head of sustainable development at the Swiss bank J. Safra Sarasin. For example, Novartis and Roche asked other investors about what access to medicines would be offered to developing countries. Companies that process the raw material cobalt, which is important for batteries, ensure that no children are used in mining in the countries of origin.
The first step is often a letter to the company, Poser reports. However, companies are not always willing to provide information. “It is always important that they have a stick in addition to the carrot.” The last resort is to throw the company out of the investment portfolio.
THE USA AND CHINA ALSO POINT TO THE TRAIN IN EUROPE
Demand for green systems is also driven by increasing regulation making fossil fuels more expensive, for example by higher CO2 prices. There is also no shortage of money. The global green bond market surpassed $ 1 trillion in early October, said Bertrand Roucher, portfolio manager at Mirova, an asset management firm specializing in sustainable investment. “Thanks to, among other things, the lively issuing activity in the European Union, new green bonds worth EUR 300 billion may be issued in 2021”.
The topic of sustainable development is fashionable in all regions of the world: with the “Green Deal” the EU wants to be climate neutral by 2050, ie no longer emit any greenhouse gases. China, the world’s largest producer of greenhouse gases, has jumped into fashion and wants to become climate neutral by 2060. With the election of Joe Biden as the future US President, a strong impetus for alternative energy is also expected in the US. Globally, the billions that flow into recovery from the coronavirus pandemic are also to be used to transform into a more sustainable economic model. While Germany was still one step ahead in the energy transformation, this is not the case with sustainable investments, Poser emphasizes. France is more of a pioneer here.
Frankfurt economist Volker Brühl, managing director of the Center for Financial Studies at Goethe University, criticizes that the reform of the leading Dax index missed the opportunity for stronger enforcement of sustainability criteria in German companies. Following the Wirecard scandal, membership in the top exchanges league was tied to more stringent requirements, and membership increased by ten to 40 in the near future. These changes are in principle to be welcomed, ”said Brühl. “However, this reform completely ignores the issue of sustainability.”