Sustainable investments: returns with a positive impact on the environment and society - your guide to ethical investing
Author: House of Eden
- Sustainable investing emphasizes the importance of where money is invested, not just how it is saved or spent.
- “Green investments” aim to have a positive impact on the environment, the economy and society, but also to achieve fair profits
- There are different approaches to investing sustainably and meeting your individual preferences
In recent years, sustainable investments have experienced a remarkable rise in the financial world. It's not just about how you spend or save your hard-earned money, but also where exactly it is invested. It may be surprising, but some banks invest in industries such as fossil fuels, factory farming or companies that commit human rights abuses without customers being aware of it. Sustainable investments, on the other hand, rely on companies and projects that take ecological, economic and social aspects into account without losing sight of traditional investment goals.
Definition: Sustainable investments
Sustainable investments, also known as “green investments,” refer to an investment practice. The focus is not only on financial returns, but also on ecological and social compatibility. The main goal is to direct capital into companies and projects that have a positive impact on the environment, the economy and society. At the same time, financial profits should be achieved. This type of investing takes ecological, social and ethical factors into account. However, it is important to note that the term “sustainable” is not protected by law. Therefore, it can be applied subjectively and complexly and, unfortunately, can often be exploited in the sense of greenwashing.
What sustainable investment approaches exist?
Investors have various options when deciding on sustainable investments. One of the first steps can be to switch to a sustainable bank. These banks place a significantly greater focus on sustainable financial practices and thus contribute significantly to a greater sustainable impact.
However, the topic of sustainable investing may seem confusing at first, as it involves a variety of different forms and complex terms. When researching, you come across a wide range of possibilities. It should be noted that choosing the right sustainable investment often depends on the individual preferences and personal values and goals of the investor. We take a closer look at some of the most common forms of sustainable investments:
What types of sustainable investments are there?
- Conventional investment products: All traditional investment products such as stocks, stock funds, ETFs, daily and fixed-term deposit accounts, savings bonds and bonds are also available in sustainable form.
- Investment approaches with exclusion criteria: This approach involves investments that work with self-determined exclusion criteria through which certain companies or industries are excluded. This means that investors can, for example, exclude environmentally problematic areas such as tobacco, weapons or fossil fuels from their funds.
- ESG integration: With this method, investors take ESG criteria, environmental, social and governance, into account when selecting investments. They evaluate how companies handle environmental and social issues and how their corporate governance is structured. The weighting of ecological, economic and social aspects can vary greatly.
- Impact investing: Impact investing aims to make investments that create measurable and positive added value. It makes a big difference whether you simply don't invest in unsustainable investments or explicitly invest in sensible investments based on your own value preservation.
- Crowd Investing: With crowd investing, you invest together with many others in young and sustainable projects or start-ups. The investors become co-owners or lenders and receive interest over a set period of time. Crowd investing is very easy to do via various crowdfunding platforms.
Help: How to recognize a sustainable investment
To identify sustainable investments, you can use two different tools:
Seal for sustainable investments
There are a variety of seals for sustainable investments. The FNG seal (Forum Sustainable Investments), for example, is a non-profit organization that promotes sustainable investments in Germany, Austria and Switzerland. The ECOreporter seal is awarded to sustainable banks and investments after they have passed a three-stage examination process. There is also the Austrian eco-label for sustainable financial products. This seal is evaluated based on ESG criteria. All three seals are trustworthy identifiers for sustainable investments.
Databases for sustainable investments
There are a wide range of investment types and funds on the market and not all available products can be subject to in-depth review. There are various databases available that can help investors make their selection, including: MyFairMagen and Faire-Fonds.info. You can find clear information about them in these databases. They show what proportion of the companies included in the funds according to the ESG criteria is involved in controversial transactions.
Opportunities & risks of green investments
Sustainable investments offer opportunities and risks that should be carefully considered:
- High return opportunities: Sustainable investments are among the fastest growing markets and can often generate strong returns that surpasses conventional investments.
- Long-term sustainability: Sustainable companies are often better prepared for long-term success because they can adapt to the challenges of climate change and social changes.
- Positive effect: Investors can help create positive change in the world by investing in projects and companies that have a social or environmental impact.
- Risk reduction: Sustainable portfolios are typically diversified and can help minimize certain risks, such as regulatory changes in environmental protection.
- Diversification: It is important to pay attention to diversification in order to spread the risk and not be dependent on a single investment.
- Return risk: The assumption of lower returns on sustainable investments is a prejudice. In fact, they can generate strong returns.
- Lack of standardization: The lack of uniform standards for sustainable investments can cause uncertainty when selecting investments.
- Changing regulations: Changes in sustainable investment regulations may affect certain investments.
- Crowd Investing: The risk of failure can be high as not all sustainable projects will be successful.
Does sustainable investing make sense?
The usefulness of sustainable investing depends on individual goals and beliefs. However, many investors see sustainable investments as an attractive way to invest capital. At the same time, they want to make a positive contribution to the environment and society. Given the increasing global challenges in the areas of climate change, social justice and environmental protection, sustainable investing will continue to gain importance in 2023.
In summary, it can be said that sustainable investments represent a sensible option for investors. They don't only seek financial returns, they also help solving global problems. The variety of sustainable investment approaches allows everyone to find a strategy that fits their values and goals. However, comprehensive research and advice is crucial during implementation in order to achieve individual investment goals and minimize risks. Invest in the future by considering sustainable investments and create a better world for future generations.