🌈 A quick taster for you:
- SRI (Socially Responsible Investment) describes an investment that has a positive social impact.
- ESG (Environmental, Social, and Governance) criteria can be used to define how sustainable, responsible, or ethical a company is.
- The ESG criteria should be clearly defined to avoid any possibility of greenwashing.
🧐 Why do I care?
Look after the environment while also looking after your bank balance. Sounds pretty good? Then here’s the basics about sustainable investments!
🔍 What exactly is happening here?
- Invest your money sustainably
Investments can be ecologically sustainable! Really? Yes, of course! It’s currently very common for funds — especially ETFs — to have investment targets defined according to sustainability criteria.
- Okay, but what counts as sustainable?
Good question, that's exactly where the problem is. There’s no clear answer. And there’s a lot of greenwashing going on — which is when companies talk a lot about how sustainable they are, even if they’re not! However, there are two ways to filter out the actual sustainable companies: SRI and ESG.
- SRI, sorry what?
I'm glad you asked. SRI stands for "Socially Responsible Investment".
If a company is not SRI-compliant then it’s probably having a negative social effect — examples of non-SRI would be alcohol, tobacco, fast food, gambling, pornography, weapons or fossil fuels. Whether or not a company is SRI-compliant is defined according to the ESG.
- And what is ESG?
OMG, so many abbreviations! ESG stands for ‘Environmental, Social, and Governance’. Basically, these three terms describe a company’s sustainability-related areas of responsibility.
- ‘Environmental’ describes things like preventing pollution or causing greenhouse gases.
- ‘Social’ includes aspects such as health and safety, and diversity.
- ‘Governance’ relates to sustainable corporate governance — how sustainable a company’s values and control processes are.
And now once again in more detail
ESG is used to rank companies by how sustainable they are. Banks and ranking companies — such as Standard & Poor's — evaluate companies according to the 3 ESG criteria. This enables us as customers to objectively assess how sustainably a company is operating.
ESG defines criteria that go beyond the legal requirements. In 2006, the United Nations mentioned ESG for the first time in its ‘Principles for Responsible Investment’ in order to focus on sustainable investment.
So if a company behaves in an ESG-compliant manner, it is exemplary in the areas of environmental, social and sustainable corporate governance. And therefore, any money invested in such a company is done so responsibly, as it helps fulfill the vision of truly sustainable companies.
In the long term, the more people that invest in ESG-compliant companies, the more motivated all companies will be to become truly green. So the investments that we make as individuals have the power to create positive change in the world. Of course, any investment should also be sustainable for you — and generate profit while avoiding risk. That's why it’s important to consider not only ESG but also the economic aspect. Investing in the most sustainable company that only makes losses doesn't help your wallet.
🤓 What does this mean for me?
- The ESG ranking helps you to stay in the know!
If you want to invest your money in an ecologically sustainable way, an ESG ranking offers you a good anchor point. Basically it gives you the peace of mind that sustainable criteria are being met by ESG-compliant companies.
- But beware!
There are still differences in how well companies adhere to the ESG criteria — some are far more strict than others — so it’s always worth digging a little deeper before you invest. It’s a bit like how some people say they’re vegetarian, but then they tuck into a rare steak when they’re on holiday!