Do you want to invest sustainably and make your money as socially and environmentally friendly as possible? Then you've come to the right place! Maybe you already eat a vegan diet, avoid flights as much as possible, use green electricity, buy seasonal, organic food and try everything else to reduce your carbon footprint. Making lifestyles more sustainable.
However, it is not only important what you spend your hard-earned money on or save - but also where it is invested. For example, your bank may invest your money in fossil fuels, which Factory farming or companies that violate human rights without you realizing it. With a few tricks, however, this can be quickly identified and rectified so that your money works sustainably for you, your values and your financial goals, as well as for good in the world.
In this article, you will find out exactly what is meant by sustainable investing and how it works. From the benefits, sectors, investments and their characteristics to tips for your sustainable investment. Let's go!
You can find a brief overview here in advance:
Good to know: I wrote this article in collaboration with Philip from kinu.earth written. As he deals with sustainable finance on a daily basis, he is of course particularly well versed in this area.
Definition: What is sustainable investing?
The classic "The magic triangle of investment" with the competing goals of return, liquidity and security may already be familiar to you from a personal consultation at the bank. With consciously sustainable investments, this is simply around the class of sustainability extended. It therefore also includes ecological, economic and social objectives. (ESG criteria)
Now to the definition! Sustainable investment (often also called sustainable finance or ESG investment) means investing in companies according to ecological, economic and social aspectswithout disregarding the traditional investment objectives. Above all, the aim is for your own capital to generate combined added value for the environment, the economy and society while it grows.
Advantages: Why is sustainable investing important?
Basically, sustainable investing is important because your investments Do good and at the same time financial goals (e.g. retirement provisions, major purchases in the future) and personal Fulfill dreams can.
Before I go into these two aspects, I would first like to give you a Overview about the most common motives for environmentally conscious investors:
- Great potential for high profits in the long term
- Significant risk reduction of the investment
- Positive social and environmental impact
- Consistency with personal values and beliefs
- Increased regulatory changes Attention to ESG factors
- Great market and growth opportunities
- …
Ethical investing for a better world
If you have not yet looked into sustainable investments, it is highly likely that your money is currently invested in projects that do not necessarily correspond to your personal values. So first of all, there are the ethical and moral motives that make it worth taking a closer look at your own investments.
The first step should be to create a sustainable bank as it invests your money with tenfold leverage₁ and thus gives you a significantly greater, sustainable impact generate.
For example, around 90 trillion US dollars in investments will be needed by 2030 to meet the goals of the Paris Agreement.₂ How cool would it be if you could contribute to this with your pension and other investments and at the same time benefit financially from the sustainability of these investments?
Investing for your financial goals
Of course, your financial goals are at least as important - otherwise you could just donate the money. If you just leave your money in your bank account or under your pillow, it loses value due to inflation. In the future, you will therefore be able to afford less with the same amount of money. This is of course problematic if you want to provide for your old age or save for larger expenses in the future.
But if you invest it, you will benefit from a return. This varies depending on the type of investment and is associated with different risks. Normally, however, over a longer period of time quite certainly expected a return be. For the German share index (DAX), for example, this averages 7 percent per year.₃
Even more important: the longer you have time and invest your money, the lower the risk and the greater the compound interest effect. So starting as early as possible is particularly important when investing! Doing nothing with your own money leads to a loss of value and probably also to your money supporting companies that are bad for the environment and social development.
Forms: What types of investments should I know?
Experience has shown that when investing (sustainably), you come across many different forms and complex terms. I'll try to shed some light on the subject and briefly explain the most important types of investment. I will then go on to explain their sustainable impact and how you can invest in practice.
What is a share, a fund or an ETF?
The classic way of investing is to invest money in Shares on the stock exchange. These are (very small) shares in a company. You can buy a share either individually or bundled with other shares.
Bundling is then referred to as a Equity Funds. It is usually actively put together by people who check whether a company should be included in the fund or not. However, such funds can also be compiled automatically according to fixed rules (e.g. the largest companies in a country or sector), which means that ETF (Exchange Traded Fund, often also index fund) or passive fund.
The advantage of investing in shares, equity funds and ETFs is that you can sell your shares at any time. This form of investment is therefore very flexible. With funds and ETFs, you also have the advantage that you can easily invest in many companies at the same time simply by following your heart.
This diversification is important for your Risk minimization particularly important: if a company performs poorly, this is compensated for by other companies in the index. An ETF also usually has a lot of Lower feesas no managers have to be paid as with the fund.
How can a share have a lasting effect?
When you buy an asset, the company does not receive any money because you are buying it from another person or organization. Theoretically, however, the High demand for the shares of this company also affects their share price. And this means that the company can raise money more cheaply. In this way, your share has an indirect sustainable effect.
But even better: through the share you also have a Voting rights and can thus influence the management of the company on a pro rata basis. If you buy individual shares, you can also transfer your voting rights in some companies, e.g. to the Umbrella organization of critical shareholderswho then pushes for sustainability and ethics on your behalf.
Good to know: Active funds or ETF providers:inside sometimes use the voting rights of their shares, but unfortunately only very rarely very actively and in the sense of a sustainable transformation.
What is impact investing and crowdinvesting?
Impact investing has many definitions. In this article I mean Investments that provide measurable and obvious added value create. For example, you can contribute a small amount to a wind farm or forest project, where it is then clearly calculable how much CO2 is avoided or how big your personal impact is.
But real estate projects or young, sustainable companies can also be financed. Mostly you then invest together with many other (because of this Crowd Investing) over a fixed period of time and receive previously agreed interest. This is very easy to do via various crowdfunding platforms, for example.
What is a call or time deposit or a savings bond?
You may have heard of call money and fixed-term deposits at your bank. In both cases, you save your money in a separate account. With the Call money you can access your money daily and usually receive a higher interest rate than on a current account.
At Fixed Deposit In contrast, you invest your money for a fixed period of time and cannot dispose of it during this time. The term usually varies between six months and several years. A Savings bond has the same principle and usually even longer terms of up to 10 years. However, fixed-term deposits or savings bonds pay a higher interest rate than call money.
This form of investment is therefore very safe, but the expected return is usually lower than equities or impact investing - often even below inflation.
What are bonds?
If governments or companies (the issuers) need capital, they can issue securities in which you can invest. In return for the borrowed money the issuer or issuer of the bond pays you a fixed interest rate and guarantees repayment of the capital at the end of the term.
Bonds have different maturities and interest rates, depending on the issuer's credit rating and other factors. They are often referred to as safe investment as repayment is guaranteed by the issuer.
Industries: Which business areas and practices are sustainable and which are not?
With every cent you entrust to a bank or other company, you are supporting them. That's why it's so important, to consider who and what you are supporting with your money.
So let's take a look at the business areas and practices that characterize both harmful and sustainable investments. Ultimately, they can make it easier for you to choose the right offers on the financial market.
Ecology
Whether climate change, Plastic waste in the environment or Water shortage - We humans have the biggest environmental problems of our time created by ourselves. Now we have to solve it together. By investing your money sustainably, you can become part of the solution. You can use the following aspects to guide your investment.
To promote sustainability:
- Renewable energies
- Energy efficiency and resource conservation
- Waste avoidance (see Zero Waste Lifestyle)
- Water conservation
- Climate-friendly nutrition (see Nutrition & Environment)
- Organic farming
- …
To be avoided in the interest of sustainability:
- Deforestation of the rainforests
- Factory farming
- Genetic engineering
- Coal and nuclear energy
- Pollution
- …
Social
However, a sustainable investment should also take fair, social and societal aspects into account. Therefore, make sure that your investment promotes sustainable and ethical industries and excludes critical business areas as far as possible.
To promote sustainability:
- Social facilities
- International cooperation
- Anti-animal (see Animal testing)
- Compliance with international conventions
- Equality between men and women
- Healthy, climate-friendly nutrition
- Anti-corruption
- Human Rights
- …
To be avoided in the interest of sustainability:
- Weapons industry
- Factory farming (see Factory farming)
- Porn industry
- Fur industry
- Alcohol Industry
- Tobacco industry
- Child labor
- Gambling
- …
Economy
If you decide to support a project, a medium-sized company, a bank or a corporation, then you should also take a look at the company management and how they work.
To promote sustainability:
- Sustainable corporate philosophy
- Compliance with quality and environmental protection guidelines
- Combating corruption, child labor and arms trafficking
- Transparency in reporting
- Fair working conditions
- Regional commitment
- …
To be avoided in the interest of sustainability:
- Corruption
- Arms trade
- Child labor (see Stop child labor)
- Tax evasion
- …
Characteristics: What makes an investment sustainable?
Unfortunately, the term "sustainable" is always Very subjective and complex. For example, are (large and heavy) electric cars environmentally friendly or not? And what about the companies that provide solar energy but purchase raw materials from mining companies that violate human rights?
Since it is very difficult to evaluate such aspects transparently, there are more and more, especially in the financial sector Greenwashing. To give you a better overview, I would now like to introduce you to the most important concepts and distinguishing features of sustainable financial products.
Value-based and impact-oriented investing?
Before you invest your first cent sustainably, you should answer the question of whether you want to invest in a value-oriented or impact-oriented way. I would like to explain the two options to you first:
- Value-oriented: Although you bypass less sustainable companies or countries, the direct, positive impact on the world and society is very small. This primarily includes investing in shares via funds and ETFs or bonds, as well as overnight money or fixed-term deposits.
- Impact-oriented: Here you invest with the aim of not only increasing the value of your money but also influencing social and ecological factors and generating measurable added value for the world and society. Impact investing is therefore also synonymous with impact-oriented investment.
It is perfectly legitimate to start with slight compromises. Because, as already explained, the alternative "the money stays in the account" is generally no better.
Evaluation criteria ESG
Many funds and ETFs are assessed according to ESG criteria. ESG stands for Environmental, Social and Governance, i.e. the sub-areas Environmental, social and corporate governance. It is important to note that only the extent of the company's risk of suffering a financial loss in this area is assessed here. Not how good the social or ecological impact is in these areas. These criteria are usually assessed by rating agencies (rather opaque).
ESG funds or ETFs then usually include the most sustainable companies according to these ratings. Often from every sector, so that the "most sustainable oil companies" are also represented, for example.₄,₅
Article 8 and Article 9 Funds
These are funds that introduced by the European Union as part of the Disclosure Regulation have been established. They invest in companies that meet high ESG criteria, while Article 9 funds invest exclusively in companies and projects that make a significant contribution to achieving the goals of the Paris Climate Agreement and have a clear and measurable positive impact on the environment.
This sounds great in theory, but here too we are still at the beginning of a goal-oriented implementation. Article 8 in particular is No strict evaluationas about half of all funds would then be "sustainable".₆
How do I find out if a fund, ETF is good or bad?
ESG, Article 8 and 9 - that all sounds pretty complicated, you might think. Fortunately, there are really great databases and trustworthy seals that help us environmentally conscious investors make the right choice.
Seal for sustainable investments
There are an incredible number of seals (some of which are not so meaningful). The most stringent on the German-speaking market is the FNG seal. The Forum Nachhaltige Geldanlagen (FNG) is an independent non-profit organization that promotes sustainable investments in Germany, Austria and Switzerland. Ecoreporter Seal is a trustworthy symbol for sustainable investments.
Due to the Variety of different investment types and fundsHowever, not all products can be tested. At this point, it is therefore advisable to make additional use of databases.
Helpful databases for sustainable investments
At MyFairWealth and Fair-Funds.info you can check funds, ETFs and individual companies, for example. Here you can clearly see what proportion of companies are involved in controversial business according to ESG criteria. From palm oil or pesticides in the environmental area, to weapons or addictive substances in the social area, to corruption in the area of corporate governance.
Finally, you can of course also use FundWeb filter by articles 8 and 9 and take a look at the largest companies in the fund or ETF. Perhaps there are companies there that you like particularly well or not at all.
Get started: What is the best investment for me?
First of all, it is important to Save up a nest egg. This should cover up to six net monthly salaries.₈ For example, you can use call money accounts at a sustainable bank. Ultimately, it is important that you save your money invested in the market is not needed for a longer period of timeso that it can work for you, the environment and society.
This is an important basis for sustainable investing. I would now like to briefly and concisely explain what else you should pay attention to.
Determine criteria: Investment period, risk tolerance and hoped-for return.
The shorter you want to invest, the less risk you should take. For example, if you really want to use your money again in two years' time, but there is a financial crisis at the time, it would be annoying to have to sell the shares or ETFs at a loss. Over a longer time horizon, on the other hand, there is usually a positive trend - despite all the fluctuations. Especially if you invest continuously using a savings plan.₉
Often also makes quite a Mix of investment forms Sense. Overnight money for a nest egg, broadly diversified ETFs or bonds for a risk-minimizing retirement provision and individual impact investments with more risk for increased return opportunities and a positive impact.
How do I get started with sustainable investing?
You should first open your call money account at an eco-bank. For sustainable investments in shares, funds and ETFs, you can use the information portals mentioned above. You can then invest in the selected shares or ETFs with a custody account at your existing bank or one of our recommended providers. Favorable custody accounts are offered, for example Trade Republic*, Scalable Capital and Smartbroker* an. Here you can start with a free savings plan and from as little as 10 euros a month.
Good alternatives to invest in sustainable shares are Inyova, the Tomorrow Better* Future Stocks or Evergreen*. They may have slightly higher fees, but they will make a sensible pre-selection for you.
There are great platforms for impact investing such as wiwin*, ecoligo (energy projects only), or also GLS Crowd. With these platforms you can binvest from 100 euros.
Your money can work for you and for good in the world at the same time
Not investing is also a decision - for loss of value and often negative effects on the world. So it's better to start now, even if you don't know everything yet and not everything works out perfectly. The providers and tips above will help you find the right investment path for you.
For example, start with an ETF savings plan with a small monthly savings amount that you automatically invest with your custody account. However, your task is to register and get started before you can then sit back and relax.
"Wealth is good, when there is no guilt attached."
Jesus Sirach (more at Wealth Quotes)
I hope that I have been able to help you with the tips in this article. Do you have any questions, suggestions or further advice? Then I look forward to your comment.
Stay sustainable,
PS: Many people believe that an environmentally friendly lifestyle is expensive. This is a big mistake! Why you should actually save a lot of money through sustainability will be explained in the next blog article.
References:
₁ C. Siedenbiedel: Geldschöpfung - Wie kommt Geld in die Welt (as at: 05.02.2012), available at https://www.faz.net/aktuell/wirtschaft/wirtschaftswissen/geldschoepfung-wie-kommt-geld-in-die-welt-11637825-p2.html. [13.06.2023].
₂ G. G. Watkins, C. Contreras Casado, Z. Silva (2019): Attributes and Framework for Sustainable Infrastructure, available at https://publications.iadb.org/en/attributes-and-framework-sustainable-infrastructure. [13.06.2023].
₃ Deutsches Aktieninstitut e.V. 2022: Infographic "50 years of share returns - The DAX return triangle of Deutsches Aktieninstitut", available at https://www.dai.de/fileadmin/user_upload/211231_DAX-Rendite-Dreieck_50_Jahre_Web.pdf?ref=kinu-earth. [13.06.2023].
₄ P. Haberstock: ESG criteria, available at https://wirtschaftslexikon.gabler.de/definition/esg-kriterien-120056. [13.06.2023].
₅ S. Remer: Socially Responsible Investment (SRI), available at https://www.gabler-banklexikon.de/definition/socially-responsible-investment-sri-70774. [13.06.2023].
₆ Finanzen.net: Investing sustainably with Article 8 and Article 9 funds (as at: 10.01.20223), available at https://www.finanzen.net/ratgeber/unternehmen/artikel-8-fonds.html. [13.06.2023].
₇ Qualitätssicherungsgesellschaft Nachhaltiger Geldanlagen mbH: The criteria, available at https://fng-siegel.org/kriterien. [13.06.2023].
₈ Commerzbank AG: Notgroschen anlegen (as at: 24.10.2022), available at https://www.commerzbank.de/sparen-anlegen/wissen/notgroschen-anlegen. [13.06.2023].
₉ ZEIT ONLINE GmbH: Time beats timing - Investment horizon matters for shares (as at: 25.01.2022), available at https://www.zeit.de/news/2022-01/25/bei-aktien-kommt-es-auf-anlagehorizont-an. [13.06.2023].
