Sustainability – what does that actually mean?
You, too, are bound to come into contact with the term “sustainability” more and more frequently. Especially when it comes to the topic of investments, the question often arises: What does sustainable actually mean? Can I actually make the world a little “better”, “greener”, “cleaner” through my investment decisions? And how does sustainable investing affect performance? Before we get into details, please read through the following section:
Where does sustainable investing begin, what is sustainable?
- Are manufacturers of electric vehicles “green” by definition because, after all, they offer CO2-free means of transportation and thus massively reduce pollution? Or are they not, because the mining of lithium needed for the production of batteries contaminates the drinking water of entire regions?
- Energy companies like RWE are not green, after all they operate coal-fired power plants. Or are they, after all, because the share of coal energy has been going steeply downward in recent years and because the companies are practically only investing in renewable energies?
- Manufacturers of glass are green because glass bottles have enormous advantages in returnable operation compared to PET bottles, which are also oil-based. But what are the energy consumption and CO2 emissions of a melting tank that has to be heated up to 1600 degrees?
You can perhaps see from these three examples -- and the list could be continued indefinitely -- that when it comes to sustainability there is not just black or white and not just good or bad.
To the facts
But let’s get to the facts. Our systems can sustain a certain level of resource use without damage. If this level is exceeded, there is a risk of long-term damage to the environment and development. Since this is currently the case in many countries of the world, attempts are being made to counteract this alarming development by turning various screws, depending on the country. In recent years, the three-pillar model of sustainability has become established, according to which sustainable development can only be achieved through the simultaneous and equal implementation of environmental, economic and social goals. These goals often appear under the designation ESG, the abbreviation for the first letters of the English words environment, social and governance.
In addition, there are the so-called SDGs (Sustainable Development Goals) of the United Nations (UN), which have defined 17 goals for sustainable development within the framework of political objectives (see graphic below).
Sustainable investment strategy
All approaches have one thing in common: excluding investments or asset classes such as companies, industries or countries from the investment universe if they violate specific criteria. Some examples of exclusion criteria are corruption and bribery, labor and human rights violations, environmental destruction, coal, weapons and tobacco.
Doesn’t such an investment strategy also mean lower performance? And if so, are investors willing to accept this in the interest of contributing to a better world?
As a 2018 study by the Institute for Sustainable Investments (NKI) commissioned by the market research institute GfK found, many people (40%) are willing to invest in sustainable investments. However, only a vanishingly small proportion of them actually do so (4.8%). The reasons for this, in addition to a lack of transparency regarding the offers, a lack of product information and advisory services, are investors’ fear of accepting a higher investment risk (31%) or achieving a poorer return (23%).
A meta-study by the University of Hamburg debunked the myth that sustainable investment is only available at the expense of returns. For the study, economics professors Alexander Bassen and Timo Busch evaluated around 2,000 empirical studies that looked at the returns on sustainable investments. More than 90 percent of these studies came to the conclusion that sustainable investing has no influence on the level of profit or even increases it.
Joachim Wuermeling, member of the Executive Board of the Deutsche Bundesbank and therefore free from any suspicion of protecting this form of investment from a marketing point of view, says: “Studies show that sustainable forms of investment can provide particularly high risk-adjusted returns. Accordingly, this type of investment not only follows an ethical and moral imperative, but also benefits one’s own economic interests.”
To put it in a nutshell: If you invest sustainably, you do good for the environment and do not necessarily have to sacrifice performance. Particularly in times of crisis, such as the stock market crash in spring 2020 caused by SARS-CoV-2, investments classified as sustainable actually lost less than the markets on average.
Our equity fund also benefited from a fundamentally sustainable approach. As of January 04, 2021, we achieved four out of five stars according to ISS ESG Fund Rating, which assesses the environmental, social and governance (ESG) performance of a fund within its reference group. Funds with four or five stars are among the top 30% in their reference group or have strong sustainability ratings in absolute terms.
The younger generation in particular is placing increasing importance on sustainability in asset management, but the topic is also becoming visibly more interesting for older people.
Sustainability is not just a single word for us at Wydler Asset Management. For us, it is an attitude and a long-standing component of our investment culture, because our children should also find a world worth living in.
With us, you have a partner at your side who does not have to interpret, re-implement or even learn sustainable investing. We have been acting responsibly in matters of capital investment for many years. Therefore, it was only a logical consequence for us to sign the United Nations Principles for Responsible Investment. For details, please refer to the press release on our website:
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