With Russia’s war of aggression in Ukraine, the defense industry suddenly appears in a different light to many. Some even want gunsmiths to be classified as sustainable. So far, “green” funds have often ruled this out. But which forms of investment are actually sustainable, and what is the best way for consumers to make decisions? In an interview with ntv.de, Anke Behn, an expert for sustainable investments at the Bremen consumer advice center, explains what investors should pay attention to and how much return they can expect.
ntv.de: According to an evaluation by several media, every second so-called sustainable fund invests in oil, coal and aviation. Does this sobering balance match your experience?
Anke Behn: The problem is that sustainability is not defined uniformly, the term is not protected. Every provider of sustainable funds can work with different requirements and thus apply social criteria or good corporate governance in addition to environmental protection. Since there are still no minimum standards, products that only meet low requirements can also be described as sustainable. The taxonomy of the EU could bring more clarity. This is a classification system that aims to identify whether an economic activity can be classified as environmentally sustainable or not.
How do providers of sustainable funds choose which companies to include in their portfolio?
One of several approaches is “best-in-class”, which means that all sectors are eligible, but only the best companies. This is why companies in the oil industry, for example, end up in such funds. Proponents argue that this also encourages lagging industries to improve; Critics object to certain companies in such portfolios. To decide who is among the “best”, providers use the evaluation of special rating agencies. However, these often come to different conclusions because they use different criteria and weightings. In addition, a lot of company data is simply missing. Therefore, the EU wants to oblige a larger group of companies to publish more data on sustainability requirements.
How can investors put offers or their already completed investments to the test?
This is very hard. A look at the portfolio of an equity fund can be useful, but it doesn’t help many people because they certainly don’t know some companies. Some companies are also not properly assessed. A look at the faire-fonds.info database, which examines numerous funds, can help. Investors can see which controversial companies a fund invests in and why they are ranked as such. I also recommend asking the advisor which companies or sectors are included in the fund.
Can I protect myself from green and impact washing, i.e. the pretense of ecological criteria or a positive effect?
You should be well informed and ask critical questions before signing a contract. So take a close look to see whether the beautiful advertising images keep what they promise. The Baden-Württemberg consumer advice center has already uncovered a number of things. Whether the promised effect can really be achieved is difficult to see, and products have different modes of action. If I invest in funds or shares, for example, nothing usually happens at first, because the seller of the share usually receives my money and not the company. On the other hand, if you invest directly in a wind turbine, there is likely to be a direct impact there. However, that’s not the right choice for investors who don’t want to take a lot of risk.
Because more and more people want sustainable products, public interest is increasing and with it the pressure on companies. Industries are becoming more cautious. A closer look is being taken and it is therefore to be hoped that this will reach the real economy, i.e. companies will actually act more sustainably and, for example, adapt their production.
Where can consumers actually invest their money sustainably?
There is no clear answer to that today. Because – as I said – there is no definition, the legal regulations at EU level are currently being created, so there are still different views of sustainability. Published company data is incomplete and it is often unclear whether and how the money invested actually works. Interested parties should clarify their expectations and then inform themselves accordingly.
Where can interested parties get information?
In addition to the information from the providers, there are numerous sources on the Internet that look at it more independently. However, these also have limitations and weaknesses when it comes to assessing the sustainability of the individual products. The interests of the editors must also be taken into account. Some take a more critical, some more positive view of the topic. Nevertheless, a mix of these sources can be helpful for consumers to either search independently for suitable products or to check statements from suppliers about products. For example, the MeinFairMögen portal should be mentioned here; the “Fair Finance Guide”, which scrutinizes banks; the sustainability profiles for investment funds from the Forum for Sustainable Investments, the Fair Funds database or the regular investigations by Finanztest on investment funds.
What returns can I expect from sustainable investments?
Older studies state that there is no difference to offers that do not observe sustainability criteria. Cost, risk and return depend on the product. The higher the return, the higher the risk is usually. Roughly speaking, the risk increases from savings to bond and equity funds to stocks. When investing in investment funds or stocks, a long investment horizon is recommended. The risk is also lower on average with broadly diversified funds because the risk of fluctuation is reduced. If I invest in just one industry or region, the risk increases. Even more risky are direct investments such as closed funds, participation rights or subordinated loans.
What forms of sustainable investment are there besides funds?
This can also be a classic savings product at a bank whose entire business model is more sustainable. There is a huge range of funds. ETFs, for example, are less expensive because they are computer-based and track an index. On the other hand, they’re probably not the most sustainable of funds. In addition, a wide variety of investment forms are offered, such as closed funds, participation in cooperatives or participation certificates. These products of the gray capital market have very different contract constellations that you should take a close look at; because sometimes a total loss is possible. High initial sums are often to be paid and the terms are long, sometimes money has to be added. Of course, the risk is greater with small projects than with an investment fund with numerous companies – if one stumbles, it doesn’t matter that much. So if you want to invest 30,000 euros, for example, it would be better not to invest 10,000 in a gray capital market project, as that would not be well distributed.
Should I entrust my portfolio to a professional?
If you take care of it yourself, you can save money. If this is not for you, you should have several conversations, not just with one provider. This way you learn something new, can question points and, above all, compare them. All banks now offer sustainable investments. We examined banks using more extensive criteria in 2020.
What is the best way for investors to make their selection?
A basic rule is to spread your money well to reduce the risk of fluctuation. The first thing I should do is clarify my goals and my needs: How long can my money be invested and how great is my need for security? Then I can define my expectations of sustainability: Is excluding certain industries or behaviors enough for me, or do I want more? Before I finally have several consultations or make a choice myself, I should inform myself in detail. The geld-bewegt.de portal of the Bremen consumer advice center can help, for example.
Where can I invest my money if social justice is particularly important to me?
There are special products that focus on this. Here, too, there is no definition. Microfinance funds, for example, grant microloans to Third World countries. However, such funds are not right for every investor. You have to take a close look at that.
How popular are sustainable forms of investment now?
For a long time, sustainable investments were considered a niche, but that is no longer the case. Sales figures and the number of such products have increased rapidly in recent years. And according to a survey we conducted, more people who don’t invest in this way yet are interested in it. However, the perception of sustainability is also a process: in our survey in 2013, for example, the rejection of nuclear power was greater than now, but not so much of fossil fuels. Back then, Fukushima scared people, and today it is clear to many that Germany is phasing out nuclear energy. Instead, there is now much more talk about climate change and CO2 savings.
Christina Lohner spoke to Anke Behn
