Earn money and do good with sustainable investments

Money rules the world - if we let it

In our minds, the topic of financial capitalism is not necessarily linked to the topic of sustainability. However, it may well be, because ultimately banks multiply money, money brings power and power means being able to move and change things. Who we entrust our money to is therefore another way of acting sustainably. Why is that the case? Put simply, we give our money to a bank for a certain interest rate and the bank makes it available to the economy for a higher interest rate. If we choose a green bank, such as GLS Gemeinschaftsbank or Umweltbank in Germany, then we know that they will only make our money available to certain parts of the economy, namely those that do not get in the way of our moral ideas. And this applies all the more to capital that we invest for the long term. That's why people for whom sustainability is important should definitely invest their capital sustainably.

What counts when investing money

Basically, investments are weighed up between the three quantitative dimensions of the investment triangle, which are liquidity (how easily, quickly and cheaply can the investments be converted into cash?), security (return comes before risk - the more secure the investment, the lower the profit) and return (profit on the investment). For sustainable investments, the triangle becomes a square, as the qualitative dimension of sustainability is added. All dimensions are interdependent. However, sustainability must be considered separately as it is the only qualitative dimension. This means that it is not about abstract figures, but about what our capital is actually used for, and if we are concerned with ecological and ethical issues, then this dimension will be our top priority.

Sustainable investments VS. conventional investments

But what exactly does it mean for an investment to be sustainable? To date, there is no standardised definition. This is not surprising, because at a certain point it is a very subjective question. Nevertheless, there are useful methodological approaches for evaluating sustainable financial products and distinguishing them from conventional ones. Basically, the narrower we define the term sustainability and the less willing we are to turn a blind eye, the fewer options we have for investing our money - logically. However, this does not have to be a bad thing, because according to a meta-study by the University of Kassel, sustainable funds still perform just as well as conventional funds in terms of returns. When evaluating the "green tone", selection using exclusion criteria is considered to be the least stringent approach.

In short, a list of no-go's is drawn up and if a company or sector has one of these no-go's, it does not receive any capital. A typical list of no-go's for companies would be, for example

• Disregard for animal and plant welfare, such as animal testing or genetic engineering
• Disregard for human rights, such as countries that practice the death penalty or child labour
• Discrimination, such as bans on abortion or homosexuality

A typical list of no-go's for industries includes

• Environmentally harmful industries
• Arms and defence industry
• Alcohol and tobacco industry
• Gambling industry
• Nuclear power industry
• Porn industry (although a more precise distinction must be made here, as not the entire porn industry is exploitative)

Always see the positive

Then there is positive screening, which is more or less the opposite of the no-go method. Sustainability factors are analysed and assessed using a points system. The abbreviations ESG (Environmental, Social, Governance) or SRI (Socially Responsible Investment) are often used, which can provide an important decision-making aid, especially as these two evaluation systems are becoming increasingly widespread. They mean that the sustainability of companies can be compared and assessed in a standardised way. Of these, a certain percentage of the "best in class" are then selected and only these are considered for capital investment.

Typical assessment criteria are

• Social criteria (working conditions, treatment of employees, training opportunities, anti-discrimination measures and so on)
• Ecological criteria (environmentally friendly products, environmentally friendly technologies, low CO2 emissions, efficient use of resources and so on)
• Governance criteria (employee health promotion, independent supervisory board and so on)

The positive screening provides important points for orientation, but should be treated with caution from a certain point onwards, as "the most sustainable company in a sector" is not the same as "a sustainable company". After all, the most sustainable arms manufacturer is still an arms manufacturer.

Swarm intelligence for a good cause

Another interesting approach is crowd investing or impact investing, in which specific projects and companies are supported. The money is invested in an impact-related manner, which is why impact investing enjoys a reputation for being particularly transparent and comprehensible. One example of this would be investing in sustainable start-ups and young companies. With this method, we only need to check whether the company actually fulfils our ideas of sustainability - otherwise it is a very good method if we want to know exactly where our money is going and what it is being used for, which also allows us to invest specifically in companies from our region, for example.

Artificial intelligence as an investment advisor

In recent years, so-called robo-advisors have increasingly been used as a good and relatively new alternative to fee-based investment advice. These are now also available in green! Robo-advisors are computer programmes that follow predefined algorithms and rules and invest and manage the money you give them. Robo-advisors are very cost-efficient and can prevent us from being driven by our emotions when investing. One example of a sustainable robo-advisor is Klimafonds.de. If you want to invest your capital specifically in certain environmental areas, you should take a closer look at the Investify robo-advisor from Luxembourg.

The crux of the matter

To summarise, it can be said that sustainable investments, financial products and banks are basically no different in terms of form and structure: They work in exactly the same way as investments with conventional banks. There are the same ways of investing money, the same benefits and the same risks. The big difference, however, is what happens to the money we invest. If we opt for sustainable investments, we can be sure that it goes where it does good and creates meaning. And in the long term, we can also have a positive impact on the financial system together.

Cover picture: iStockphoto