Investing sustainably: How it works and why it is important

Investing sustainably: How it works and why it is important

What does sustainable investing mean?

Sustainable investing, also known as socially responsible investing (SRI), is an investment strategy that balances financial returns with social and environmental goals. Instead of just focusing on financial gain, sustainable investing also takes ethical and sustainable criteria into account.

The idea behind sustainable investing is to invest capital in companies that have a positive impact and represent certain values. These ideas can include environmental protection, social justice, human rights, good corporate governance and much more.

How does sustainable investing work?

There are different approaches and strategies for sustainable investing. Here are some of the most common:

Exclusion criteria

This strategy excludes certain companies or industries that engage in certain negatively viewed activities. For example, investors may choose not to invest in companies that produce tobacco, extract fossil fuels, or are involved in animal testing.

Ethics-based selection

With this method, investors specifically select companies that meet certain ethical criteria. These include companies that are committed to renewable energies, fair trade or good working conditions.

INCLUSION CRITERIA

In contrast to the exclusion method, inclusion deliberately selects certain companies or industries that carry out certain positively valued activities. For example, investors can invest in companies that focus on renewable energy or offer innovative solutions to social challenges.

Theme-based investments

Theme-based investing focuses on specific areas or issues related to sustainability. These include, for example, investments in clean energy, education, healthcare or sustainable agriculture.

Why is sustainable investing important?

There are several reasons why sustainable investing is becoming more important:

Ethical principles

For many investors, it is important to invest their money ethically and reflect their values ​​in their investment decisions. Sustainable investing offers a way to invest capital in companies that adhere to a certain ethical vision.

Promote sustainable development

Promoting sustainable development is a global challenge. Through sustainable investing, investors can support companies that offer innovative solutions to environmental problems, social challenges and economic development.

Financial performance

Some studies have shown that sustainable investments can provide financial returns that are as good or even better than conventional investments. Sustainable investing therefore does not preclude compromises in financial performance.

Risk reduction

Companies that operate sustainably and pay attention to social and ecological factors can usually be better prepared for future challenges. Sustainable investing can help reduce the risk of investing in companies that could be affected by environmental crises, reputational risks or regulatory changes.

Frequently asked questions

How can I find sustainable investments?

There are different ways to find sustainable investments. You can speak to a financial advisor who specializes in sustainable investing or use online platforms that provide information about sustainable funds and investment products. Additionally, there are sustainability rankings and ratings that can help you identify companies that adopt sustainable practices.

How can I evaluate the financial performance of sustainable investments?

The financial performance of sustainable investments can be assessed in different ways. One approach is to compare the returns of sustainable funds and indices with those of conventional funds and indices. Additionally, you can analyze the sustainability ratings of companies and funds to assess their financial performance and sustainability practices.

In which sectors can I invest sustainably?

There is no specific industry you need to invest in to make sustainable investments. Sustainable investments are possible in a wide range of industries, including renewable energy, technology, healthcare, education, sustainable agriculture and much more. You can invest in companies that operate in areas that match your values ​​and interests.

What risks are associated with sustainable investments?

As with any type of investment, there are risks with sustainable investments. For example, certain sustainability sectors may be volatile and may be subject to higher price fluctuations than established sectors. In addition, there is a risk that companies that operate sustainably will still face financial or operational challenges. It is important to carefully analyze the risks and carry out balanced portfolio diversification.

Sustainable investing offers investors the opportunity to align their money with their values ​​and create positive change in the world. It is a growing investment strategy that can be consistent with your ethical and financial goals.