Sustainability And Ethics In Investment
According to recent researches it is especially women and millennials that keep pushing sustainable investments. They want more than just earning money and saving for retirement. They want to do good with their assets. But did you know that sustainability and ethics in investment have been around since quite a while?
Ethical funds have their origin in the US where they were introduced in the 1920ies, triggered off by Methodist and Quaker preachers. At the time, it was all about excluding enterprises from funds that produced alcohol, tobaccos, and weapons or managed casinos.
Over time exclusion criteria expanded and since involve violations of human rights and environmental standards. By now, companies that take a stand for inclusion and social issues are included, too. So let’s take a closer look at ethical investments for women.
What Are Ethical Funds?
Due to clearer defined and detailed guidelines for sustainable investments, the terms sustainable, green, responsible, and ethical are long interchangeable synonyms. Most likely, however, your asset manager will talk about ESG funds or investments that meet ESG standards.
ESG is an acronym that stands for „environmental, social, and governance“. That means, ESG funds are funds that allow you to exclusively invest in enterprises of an environmentally friendly and socially compatible production and governance. Ethical funds differ from traditional investment funds under financial and regulatory aspects.
Ethical or sustainable funds only invest in securities that meet determined requirements and, among other things, fund non profit organizations by means of commissions and returns.
Even though, ethical funds have been around for nearly a century, they haven’t gained much attention until the 2000s. Since then, they’re experiencing a fully fledged boost. Especially among women, sustainable investments have been growing in popularity, but there’s an over-all strong and going general trend towards sustainability and ethics in investment. Today, sustainable funds are among the most widespread money and savings investments among private investors that start to become more and more aware and sensitive about how to invest sustainably.
Europe Is Leader In Sustainable Investments
The Global Sustainable Investment Alliance has done the math. And the results show that the amount of sustainable investments has grown by 34% between 2016 and 2018. This equals a total value of 30.7 trillions (in 2016 it was just about 23 trillions). European investors contribute the largest amount of this total, pouring 14 trillion dollars into sustainable investments in 2018. That means, they invest more money in green and ethical investments than the USA (12 trillions) and Canada (1.7 trillions) combined.
However, Oceania (Australia and New Zealand) is leading in terms of the highest percentage of sustainable investments in relation to the entire total. Down Under, 63% of all investments respect sustainability and ethics in investments. In Canada it’s 51%.
20 trillions out of the almost 31 trillion dollar that investors invest sustainably worldwide, flow into investment products that meet the basic requirements for sustainability. These include the exclusion of sectors, markets, and companies that produce and support tobacco, pornography, cluster bombs, firearms, and alike. It goes unsaid that the above-mentioned ESG criteria have elaborated. After all, 17,500 billion dollars flow into ESG assets. That’s almost 70% more than in 2016.
Europeans are the leading investors when it comes to the so-called Impact Investing, too. The offer is just starting to gain acceptance, and yet, Europeans have invested 10% more money (i.e. 108 billion euros) in such investment products than two years earlier. That makes them second to the US of A in Impact Investing who invest 294 billion dollars ethically.
To Know And To Recognize Sustainable Investments
Recognizing sustainable investments isn’t always easy. Especially as a private investor and a beginner. Since ethical investments for women keep gaining in significance, we want to provide some tips for you to recognize sustainability and ethics in investment.
Furthermore, our financial experts are very happy to provide a deep dive for you and help you find out which possibilities you have to invest sustainably. Let’s talk:
Insinuating the phenomenon of greenwashing, Pietro Negri of Italy’s Sustainability Forum (FFS, Forum per la Finanza Sostenibile) says:
“Sustainable investments are no fad, but an unstoppable trend. At the same time, they need to be meticulously and rigorously analyzed.“
Many supposedly sustainable funds include corporations that still support fossil fuels or questionable palm oil production.
So, before you can invest sustainable, you should take a close look at the entities that you’re presented in the documents of investments you’re considering. But there are also labels that provide some helping orientation.
In order for companies to obtain such a label, they have to prove that their corporate policy meets requirements of environmental protection, product safety, quality improvement, staff health and protection demanded by the various seals and certificates. Corporations emitting ethical fonds may not be associated with arms, tobacco, inhumane and degrading or health threatening products and working conditions.
However, sustainability and ethics in investment is a question of definition that varies from funds to funds and country to country. For instance, the French regard nuclear energy sustainable, because it produces little CO2. In Germany, this is not the case. For one, because there is still no final solution on how to deal with the fuel rods. And also, because it’s suspected to encourage leukemia and other types of cancer increasingly diagnosed in the vicinity of power plants.
In order to unitize these different ideas of sustainability and ethics in investment, in 2018, the EU commission presented an action plan for financing sustainable growth. Some of the provided steps to fostering and unitizing sustainable investments are already implemented:
- A standardized classification system for green practices has been created,
- asset managers and institutional investors need to include the sustainability criterion into investing processes, and
- the Paris Climate Agreement CO2 emission value has been established as a maximum reference value for an investment to be labelled sustainable.
However, it might take some more time until all the EU initiatives provided in the action plan — such as (1.) standardizing indicators to generally define sustainability and ethics in investment, (2.) compelling financial advisors to transparently and verifiably consider their clients’ preferences to invest sustainably, (3.) targeting corporations to make non-financial information more transparent (e.g. supply chains), and (4.) integrating sustainable investments into the insurance business and company pension schemes — will all be realized. (For more info, find the action plan fact sheet here and the elaborated version here.)
As long as the sought consensus cannot be established, you hardly have another choice than to rely on the existing labels and quality seals. Just, please don’t trust them blindly. Apply the criteria that are important to you to the those outlined under the respective seal, and see which of them meet your personal standards the most. Our financial experts are happy to help, if you need some support:
These Seals Allow You To Invest Sustainably
Climetrics is a rating agency for investment funds scoring their sustainability. They assign up to five leaves per funds. That makes it easy and clear to rank sustainable investments. On the search for ethical investments for women you can choose the minimum standard (amount of leaves) that an investment needs to meet and Climetrics will display a selection. Climetrics is known to be especially strict, because they don’t just evaluate the funds but also the issuer. So that both will receive a score only in combination.
The German Trade Association For Sustainable Investments (Fachverband für nachhaltige Geldanlagen (FNG)) emits their sustainability seal to funds that meet at least 90% of the minimum standards for sustainability and ethics in investment. These standards are based on the UN Global Compact that defines globally agreed-upon human rights, environmental and work safety, as well as anti-corruption measures. FNG labelled products never invest in questionable sectors like armor, coal mining, coal powered electricity, fracking, nuclear energy, and weapons.
Established in 2011, ECOreporter is an independent magazine for sustainable investments. In 2013, they launched their own seal to annually label financial products (and banks, as well as consulting agencies) that invest sustainably. Unlike the FNG, ECOreporter allows for funds to invest 5% in of nuclear power, weapon, and armor. They do, however, exclude sectors where child-labor, genetic engineering, and animal testing are common, along with countries that practice death penalty and ignore human rights. Also, branches related to gambling and addictive substances don’t ever receive an ECOreporter label.
Nordic Swan is a general eco seal, established as a common projects of all Scandinavian governments in 1989. Meanwhile, they also check and label investment funds for sustainability. Nordic Swan, too, requires to meet at least 90% of ESG standards in order to classify an investment product as sustainable. They mostly deal with corporations operating in renewable and alternative energies, water infrastructure in developing countries, waste and recycling technologies, environmental protection services, and ecologic agriculture and forestry.
These Indexes Support Sustainability In Investments
Besides seals, you can also obtain some orientation from specific indexes with underlaying — self-defined — sustainability criteria. These are just some propositions. But just like with the labels, the sustainability indexes, too, require you to take a profound look in order to find out to what extent their guidelines correspond to your ideas of sustainability and ethics in investment.
- DAXglobal Sarasin Sustainability (Category: Sustainability)
- ECPI Ethical Indexes (Category: Social)
- FTSE Environmental Markets Index Series (Category: Environment)
- FTSE4GOOD Index Series (Category: Sustainability)
- Global Challenges Index (Category: Sustainability)
- HSBC Global Climate Change Benchmark Index (Category: Environment)
- STOXX Sustainability Indices (Category: Sustainability)
These indexes are a mere selection, of course. Our financial experts can help you to find other interesting and sustainable indexes for your green investments. Why don’t you book a free assessment right away?
Sustainable Investments Is Women’s Business
Ethical investments for women are investments that don’t just benefit you by multiplying you assets. They do good in other aspects, too. It’s proven that sustainability and ethics in investment are especially important to women. And it’s proven that women already control one third of all money assets worldwide. Now just imagine for a minute, what women might achieve, if all of them took just a part of their money to invest sustainably!
Aren’t you convinced, too, now that your money can do more than just lay around on your savings account? If so (and even if not), stay up to date by subscribing to our blog and regularly receive news from the vast world of investment.