Sustainable investment is booming. According to Forum Nachhaltige Geldanlagen (FNG), green investment by private investors has tripled to over € 130 billion in 2021. More and more people do not want to spend their money on financing companies that, for example, employ children, pollute the environment or manufacture weapons.
In addition to your return, other aspects should also affect your investment. Sustainable aspects. But how do you recognize the sustainability of funds or ETFs? What do you need to pay attention to? What about the return? We asked the experts.
Ethical, social and environmental aspects play an important role
“Basically, it can be said that in a sustainable investment, in addition to the normal criteria, ethical, social and environmental aspects are also taken into account,” says Annabel Oelmann, member of the board of the consumer consultancy center in Bremen. How the company deals with the environment and its employees or what products it produces and how they play an important role. But there is a problem: “Sustainability is not defined,” says Annabel Oelmann, “everyone can mean something else by that.”
Fund managers have different approaches to filtering resources for sustainability. “There are negative and positive criteria and a best-in-class approach,” says Oelmann. In the case of negative criteria, certain sectors are excluded, e.g. arms manufacturers or oil companies. If they apply the positive criteria, funds only go to special green sectors or companies – such as producers of solar PV systems.
“A best-in-class approach invests in companies that perform best in their industry in terms of environmental or social standards,” says Jella Benner-Heinacher of the German Securities Protection Association (DSW). This means that in a sustainable fund with this approach, the most sustainable arms manufacturer or mineral oil company can also be listed alongside the greenest car manufacturer.
Competition should promote development
Sounds weird, but it certainly has its benefits. The fund has a broader base as equities from all sectors are listed, which reduces the risk of investing. In addition, mutual competition between companies for sustainable development should lead to the overall economy becoming more sustainable. Change in all industries.
“With the Financing Sustainable Growth action plan, the EU has set itself the goal of promoting investment in the transformation of the EU economy, and a best-in-class investment strategy can also support this goal,” says FNG’s Volker Weber. Even an investment that does not seem green at first glance can be quite sustainable at first glance.
Labels and seals provide guidance
Unfortunately, investors have to look very carefully. “Classic products are often suddenly sold green, but usually only from a marketing perspective,” says Jella Benner-Heinacher, “it’s called greenwashing.”
In the meantime, however, there are more and more orientation aids through various labels or seals. For example, the EU taxonomy aims to classify financial products according to their durability. To this end, the commission has set six environmental goals – with very precise parameters. In addition, corporations must disclose how they operate sustainably. This information is intended to help investors identify green companies.
Before the EU, this issue was dealt with by others. There is an FNG seal, an ECOreporter seal or a climate rating from Climetrics. The ESG acronym “Environment – Society – Governance” (environment – social affairs – business management) is also closely related to sustainable investment, although the criteria here are the least stringent. “The term ESG says nothing about how truly sustainable a product is,” says Jella Benner-Heinacher.
Own research is essential
Annabel Oelmann from the consumer advisory center in Bremen has no minimum standards, especially for state-subsidized aging products, to make the sustainability of companies more transparent to investors. “So it’s too cumbersome, too complicated, more for the dark green investor,” he says. “It needs to be made easier. We need standards. “
Until they arrive, you need to do your own research before making a green investment. “It’s difficult with a huge selection of funds, but investors should continue to look closely at what fund managers mean by sustainability and what I mean by that,” says Annabel Oelmann.
Investors can find information on the Internet. The fund provider’s website sometimes lists each individual company the fund invests in, but in each case the sustainability criteria used are explained. The Sustainable Investment Forum website has sustainability profiles for hundreds of funds. There you can even filter by aspects such as exclusion criteria, approach to sustainability or type of fund.
Yield usually above average
The impact on sustainable investment should also not be underestimated. “Research shows that investors can achieve the effect of, inter alia, through a long-term dialogue with companies, that is, commitment, including exercising voting rights, in order to improve their behavior in relation to ESG criteria, ”says Volker Weber from FNG.
The result is also pleasing to investors as sustainability is by no means at the expense of profits. As a rule, green wallets do even better because sustainable companies operate in a more forward-looking and profitable way. Low costs, higher corporate profits, rising share prices. In this way, sustainable development can be a win for everyone.