Sustainable investing

The term “sustainability” describes the use of a system (like a society or ecosystem) in a way that allows the system to remain functional and maintain its key features for future generations. For example, a sustainable fishing culture would require the fishing industry to ensure that a similar level of fish remain available in the world’s oceans for each subsequent generation. The term has many ecological, economic and social components, which are generally interconnected.

Sustainable investment has become a buzzword. The financial world is talking about «green money», «social investments» or «sustainable investments».

Sustainable themed funds invest in specifically sustainable theme groups such as renewable energies, sustainable usage of natural resources or microfinance.

But what is sustainable investing? A common classification of criteria is into ecological criteria (environmental criteria), social criteria and corporate governance criteria. However, ecological, social and ethical criteria are not always differentiated precisely. Also, the concrete criteria and standards for sustainable investments vary from investor to investor: a close view of the effected investments is therefore worthwhile in any case.

Sustainable investments are either determined negatively by a method of elimination or positively by a number of criteria that has to be met. In the case of a method of elimination, companies or whole industries or states that do not meet the defined criteria or norms are excluded from investments. Examples for elimination criteria of financial investments: investments in nuclear power or genetic engineering (according to environmental criteria), investments in arms or tobacco (according to social criteria), investments in corrupt companies (according to corporate governance criteria).

Further selection methods are best-in-class procedures, where investments are only made in those companies or financial products that perform best within their comparison group. Basically, almost all financial instruments can be «sustainable» as long as they meet the defined sustainability criteria: there are sustainable equities, fixed deposits, bonds, provision products, investment funds, fund of funds, savings accounts, private equity or financing.

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Expert Benjamin Manz
Benjamin Manz is CEO of and an independent expert on banking and finance.