What is sustainable investing

Sustainable investing: what investors should pay attention to

Sustainability - that is the trend word par excellence. Some people do without meat because they want to live more sustainably, others without their cars. Some people only buy their groceries in health food stores or their clothes at the flea market. There is hardly an area in everyday life that is not characterized by sustainable thinking. This also applies to private investments. More and more people refuse to invest in fossil fuels or in the armaments industry on principle. A new awareness has developed among investors.

The return is not everything: sustainability is becoming more and more important for investment decisions

There is ample evidence of this new awareness. A survey among our Econeers shows: The aspect of sustainability is the most important factor next to the return when deciding on an investment. 70 percent of those surveyed stated that sustainability is absolutely crucial for their investment. Our investors are not alone in this opinion. A study published by the “Forum Sustainable Investments” (FNG) as recently as June shows how in demand sustainable investments actually are.

The result can be summarized quickly: The capital that private investors invest in sustainable financial products in Germany has almost doubled in just twelve months - from 9.4 billion euros to 18.3 billion euros. The numbers look even more astonishing if you look at the institutional investors. In 2017, this group already invested a remarkable 82 billion euros in sustainable financial products, in 2019 it was as much as 154 billion euros.

Anyone who invests sustainably is faced with two problems

In line with the increasing demand, there is now an extensive range for investors interested in sustainability. According to the International Monetary Fund (IMF), around one to two percent of the global capital market consists of products that are geared towards sustainability. Europe makes up about half of the green financial market. So the choice is huge. But there are also two problems associated with it. Problem No. 1: With the flood of products, investors often find it difficult to keep track of things. Problem # 2: There are no uniform standards for sustainable investments.

Green is not always green: what sustainable investing means

First of all, the question about the term: The Forum for Sustainable Investments has dared to define green investments. It says there: "Sustainable investments complement the classic criteria of profitability, liquidity and security with ecological, social and ethical evaluation points." If that is not yet specific enough, you can also use the ESG criteria as a guide. E stands for environmental, S for social and G for governance (good corporate governance). The environmental aspect is, for example, about the expansion of renewable energies and lower emissions in the air. The prohibition of child labor and adequate pay are examples in the social field, and the prevention of corruption and bribery is part of corporate governance.

New rules: EU member states agree on common criteria

A uniform definition has also been discussed in politics for a long time. There is now an initial approach at EU level. In December 2019, the member states agreed on the so-called EU taxonomy. Accordingly, an investment is sustainable if economic activity aims to generate fewer greenhouse gas emissions, if less greenhouse gas is released than in the industry, or if the business model enables other market participants to reduce their emissions.

The problem that remains is that it is difficult to keep track of the flood of products. The Handelsblatt spoke to Anke Behn, the financial expert at the Bremen consumer advice center. “Consumers should look at sustainable investment just like any other investment,” she explains. So if you are interested in sustainable investing, you should ask yourself the basic questions: How much money can I put aside? How long can I do without this money? Can I sleep peacefully even if I am at high risk? Only when these questions have been clarified does the product selection begin.

Ökobank, stocks or ETFs: There is no such thing as the perfect financial investment

A simple way to become more sustainable is to have an account with a sustainability bank. In Germany there are a number of financial institutions that come into question, for example Triodos Bank. But the right account is only the basis for an ecological investment. If you want your money to work for you in a sustainable way, you can rely on ETFs, i.e. exchange-traded index funds that track the performance of a certain index - for example that of the Dax. Sustainable ETFs consist of stocks from various companies that value environmental and social issues. Just in June, Stiftung Warentest took a close look at over 70 ecological funds and ETFs. Three of them even received the top grade. But there is also a disadvantage: As an investor, you can't avoid looking at the composition of the ETFs yourself. This is the only way to understand exactly which companies and which sustainability aspects the ETFs value.

Of course, it is also possible to invest specifically in individual stocks and to choose companies that operate sustainably. However, the investor has to do extensive research here as well. In addition, with this form of financial investment, the diversification of the investment capital is lower, and the risk of price fluctuations is therefore higher.

Crowdinvesting offers a particularly high level of transparency

For those who do not want to deal with price fluctuations, crowd investing could be an option. The advantage: On sustainable crowdinvesting platforms such as Econeers, investors can obtain detailed information about the company - and even get in direct contact with the managing directors. In this way, the investor can quickly find out whether a company is only talking about sustainability or whether it is actually acting sustainably. In addition, unlike stocks and funds, investors can see directly what the collected capital is to be used for.

So the fact is: Ecological and social criteria are becoming more and more important to investors. But because there are so many products and different definitions of sustainability, it is not easy to keep track of things. No matter what you decide in the end, everyone can follow a simple rule. As with any other financial investment, the same applies to green investments: Those who are well informed beforehand and diversify their capital, i.e. invest in several companies and different industries, have a good chance of achieving an attractive return in the end.