German use „sustainable“ instead of „responsible“ for a wide range of investments thus causing some irritation. Another puzzling issue is the choice of equity funds. More transparency on (backlooking) ESG ratings and climate footprints may provide some guidance, but do not provide a clear filter for investments looking forward. Some examples that suggest some sort of standardization.
Dr. Ralf Breuer
Sustainable starts with responsible…
Being aware of negative impact is where responsibility begins. Thus, contrarian exclusions became more and mor mainstream. In the meantime, quality of ESG is recognized by a majority, but impact grows strongest. No wonder to see very good momentum in instruments linked to „climate“ and „green“. And more creative ideas like resilience bonds make it to the market.
With interest rates close to zero donation becomes a serious options. Thus, deposits were created where the tiny interest is directly paid to a social initiative and investors deduct the amount from their tax bill.
Hard to select Equity Funds
Funds targeting low CO2 or climate appear to be an attractive option. However, investors might end up with a product where the constituents are 35% financials (example on request).
Recently, yourSRI.com went live and provides transparency on climate footprints and ESG ratings. Here an example for two funds offered by Triodos Bank in Germany.
|Name||CO2e / Mio. €||ESG Score||ESG Rating|
|Triodos Sustainable Equity Fund R Cap||34.9||6.5||A|
|Triodos Sustainable Pioneer Fund R Cap||141.9||5.9||A|
Source: yourSRI.com Search for Triodos on Aug. 23rd, 2017
The first fund is a fund on „traditionel“ companies with outstanding ESG scores.
„Sustainable Pioneer Fund“ invests globally into „leadership“ in future-oriented technology, mainly small and mid-cap.
Interesting to see the scores, but what makes the difference? In fact it is the different time horizon. While footprint and scores track the past to present, „pioneers“ track the future – as sustainability does. Thus, only way out is some sort of standardization as strongly suggested by HLEG, the High Level Expert Group mandated by the EU commission. For details see the Interim Report. Green Bonds and Climate Bonds already passed that road for a good stretch, other instruments should follow.