By Henrike Hein, Jan. 21, 2023
Why should I invest sustainably?
The prejudice that sustainable investments generate lower returns has persisted for some time. However, this prejudice has been refuted in a number of studies.
Sustainable investments therefore offer at least as high a potential return as investments without a sustainability claim. On the contrary, it has been shown that sustainable investments even yield higher returns and offer several other advantages. Apart from having a clear conscience when investing, sustainable investments are also simply more crisis-proof.
Sustainable investing has advantages
The following factors play a role in the investment:
- Zukunftsfähige Geschäftsmodelle: sustainable investments focus on sustainable and innovative growth markets, such as renewable energies or other efficiency technologies.
- Government Regulation: By applying ESG exclusion criteria, many business risks can be excluded. Some business models could simply become illegal in the future. There is also a great deal of political interest in financing sustainable projects. Accordingly, more and more requirements and laws will follow that favor sustainable business models and regulate or tax non-sustainable ones. Current examples include ESG reporting requirements and EU taxonomy. This development offers a high risk for industries and business practices that have so far had little focus on sustainability.
- Reputation: A business model that takes the long view by keeping the interests of people and nature in focus is less prone to scandals and bad press. The reputation of companies often has a positive impact on demand for their products and can have a significant influence on success and returns.
ESG criteria have a positive impact on returns
As early as 2015, a meta-study found that the majority of ESG criteria have a positive impact on returns. More than 2,000 studies were summarized. The well-known MSCI World stock index generated a return of 183% between 2007 and 2019, but was still outperformed by its "sustainable" counterpart, the MSCI World Social Responsibility Index, by more than 15 percentage points at 198%. In its annual analysis of the market for financial products, the European securities regulator ESMA also concludes that even in the crisis year 2020, sustainably oriented funds outperformed conventional strategies. What's more, they were also less expensive. It is therefore not only worthwhile investing sustainably for ethical reasons.
However, most so-called „green“ ETFs are not really sustainable. Scandals and greenwashing allegations are piling up. Find out why this is the case in the blog post „What are ETFs and are they really sustainable?“.