Friedrich Wilhelm Raiffeisen, one of the fathers of the cooperative idea, once put it this way: “What is not possible for the individual, many can do.” The growing number of investors who want to invest their savings in such a way that they at least do not further contribute to the destruction of the climate are also inspired by this idea. This is easiest for private investors with actively managed funds and Exchange Traded Funds (ETFs), which simply reflect the price development of a specific stock market index. But how do you find suitable products? And how can you determine how sustainable a fund really is? A little signpost.
In most cases, the name already indicates whether a fund provider classifies its product as sustainable. If so, three letters often appear there: ESG, E for environmental, S for social and G for governance. When it comes to sustainability, it should not just be about saving the climate or protecting the environment, but also about compliance with labor and human rights or preventing corruption. ESG is often linked to other signal words in ETFs. The name of the ETF then contains connections such as “ESG Screened” (ESG filtered), “ESG Enhanced” (ESG improved) or “ESG Leaders” (ESG pioneers). Also popular are references such as “Low Carbon”) or SRI for “Socially Responsible Investment” (socially responsible investing) or the words “green” (green), “impact” (effect) or “sustainable” ( consistent). But is there always something in the fund that sounds so promising?
Ecoreporter, an independent Internet portal for sustainable investments, tests regularly the new darlings of the financial sector. The result shows that sustainability-oriented investors usually buy a more or less good compromise with corresponding ETFs. For example, some ETFs that are advertised as sustainable can contain shares in oil companies, operators of nuclear power plants or gambling groups. This is also due to the system used by the index operators to select their stocks.
Funds contain loopholes for polluters
The basis is often a normal stock market index with shares from many companies. Based on certain criteria, stocks are screened out until the most sustainable providers of each or specific industry are left. Sustainable ETFs therefore contained “loopholes,” according to Ecoreporter’s analysis. The abbreviation ESG is now being used in the financial industry “in inflationary terms since marketers believe that financial products will sell themselves if they are called sustainable”. Funds managed by fund managers, which usually have significantly higher costs than ETFs, often work according to this “best-in-class principle”.
In the first half of 2022, sustainable funds often recorded above-average losses compared to conventional funds. One of the reasons for this is that oil stocks, for example, were able to achieve strong price gains, but these are often not included in the sustainable funds. In the long term, however, the returns from sustainable funds are slightly better than a new one Investigation of the wealth center indicates. The asset managers compared the returns of several sustainable world stock indices with the classic MSCI World, which contains around 1,600 stocks from 23 industrialized countries. Example: The MSCI World ESG Leaders recorded an annual return of 8.8 percent (including dividends) from October 1, 2007 to the end of 2021, while the MSCI World returned 8.6 percent.
Stiftung Warentest awards grades for sustainability
The sustainability score, the Ecoreporter, can also help investors as orientation Rating agency Morningstar and the Stiftung Warentest. At the foundation, ETFs with a focus on global equity funds, which the product testers describe as “first choice”, only get the sustainability grade “medium”. A distinction is made between “very high”, “high”, “medium”, “low” and “very low”. To this “First choice ETFs” include Amundi MSCI World SRI, BNP Easy MSCI World SRI S-Series PAB 5%capped, UBS MSCI ACWI Socially Responsible, IShares MSCI World SRI. In the managed funds, however, the foundation gave four products the best sustainability rating (“very high”): Ökoworld Ökovision Classic, Security Superior 6 Global Challenges, Universal GLS Bank Aktienfonds, Monega Steyler Fair Invest Equities. However, the fund’s investment success is rated as “low” or “medium”. However, it can happen that certain selected funds are not available from the house bank or direct bank where you conduct your financial transactions, or not without a discount when you buy them. Investors should therefore have a certain degree of flexibility when making their selection.