Investing sustainably: Recognizing problems and investing for impact

Investing sustainably: Recognizing problems and investing for impact

Do you want your investment to make a difference? Whether it's climate protection or educational justice, there are many issues that concern consumers today. Sustainability is therefore not only important in everyday life, but also in investing.  

However, if you want to invest your money sustainably, you first have to navigate through a jungle of different products and variants. What causes the lack of transparency and how you can still easily invest in sustainable funds with Moniflo.  

In a nutshell

• Sustainable investments and a positive return are no longer mutually exclusive these days.
• Problem: The term sustainability offers a colorful spectrum of variations. Investors: inside have to face issues such as greenwashing.
• ESG criteria (ESG is the abbreviation for Environmental, Social and (Corporate) Governance) offer an initial orientation. But here too, ESG is not just ESG. Investors can only find out about potential risks, not about the impact of investments.
• It is more interesting to look at the impact of investments.  
• With Moniflo, you can compare sustainable funds specifically according to their impact score (positive impact).  

What does "sustainability" mean?

Did you know that the term sustainability originally comes from forestry? It refers to the principle of not cutting more wood than can grow back. The maxim can also be applied to other areas of life. As a result, the term "sustainability" has become an important yardstick for the 21st century. The aim is to protect the earth as the basis of life in the long term through our own actions.  

Local and global topics such as health, electromobility or nutrition can be associated and discussed with the term sustainability. You will probably also come into contact with the term again and again in everyday life. This already starts with the decision whether and how much meat you want to eat per week.

If you live sustainably, you keep your own ecological footprint as small as possible and assume social responsibility. This means, for example, that you only buy products that have been produced under fair conditions.  

Sustainability is based on three pillars

Is the term not yet really tangible for you? Sustainability is actually incredibly multifaceted. However, there are three important pillars that make up the core.  

1. Social

The focus here is also on what kindergarten children already learn: treating each other fairly and with respect. Intra- and intergenerational justice is an important social aspect of sustainability. By promoting education, dialogue and culture, the cohesion of society can be supported.  

2. Environment

Sustainability in relation to the environment means orienting oneself to the cycle of nature. Without waste and squandering, energy and resources move in cycles. This interplay is also significant for us humans and should be preserved as much as possible through protective measures. Important is: Only in a healthy environment can a peaceful society exist. This in turn is the basis of a flourishing economy and a preservation of the environment.  

3. Economics

A functioning economy is important in order to be able to cover basic human needs. Only in this way can goods and services be exchanged. This must be taken into account: If a solution turns out not to be economically viable, there is a lack of funds for further dissemination. For this reason, it is important not to lose sight of economic viability in sustainable innovations and offerings.  

To what extent can sustainability generate growth?

Have you ever noticed in your everyday life how present the topic of sustainability has become? Whether shopping online or at the supermarket, "green" products and ways of working are increasingly in demand. More and more customers are consciously thinking about their own consumption and attaching importance to sustainable alternatives. The focus is on the entire value chain and no longer just on the relationship between quality and price.  

Under what conditions was a product manufactured? Where do the raw materials come from? These and many other questions are the focus when consumers buy these days. As a result, responsible corporate governance is almost mandatory these days and no longer just a nice-to-have. The risk of a negative reputation is too high. In the medium term, there is even a legal or financial risk for companies.  

Investing in sustainable companies pays off economically

Now you're probably wondering what this development has to do with growth opportunities in the area of sustainability. In principle, it's easy to explain: Since the last few years, consumers have been placing more and more trust in companies that work innovatively and sustainably.  

The competitiveness of sustainably operating companies is permanent and is not linked to growth in resource consumption. Companies that offer sustainable economic growth opportunities and thus long-term value enhancement are therefore in demand among investors.  

Investing in sustainability: What does it mean?

You already make conscious purchasing decisions in your everyday life and now want to invest in sustainability. But what does that actually mean in concrete terms? Normally, when investing money, investors focus on three aspects when evaluating their decision:

• Security
• Liquidity  
• Profitability

If you want to invest your money sustainably, ethical and ecological aspects also play a role in the decision. This means that economic success and a sense of responsibility for aspects such as climate protection or resource conservation are balanced.  

"Green investing" therefore means introducing a new aspect to the assessment of financial investments. There are various approaches to this. While some financial investments focus on certain aspects such as climate protection, there is also the option of investing specifically in sustainable projects. This could be the construction of a solar park, for example.  

"I invest green" - Why this venture has obstacles

More and more people are deciding to invest in sustainability and also have concrete ideas about what they want to support. It is becoming more difficult to find suitable investments. This is because the term "sustainable" is not protected.

Term "sustainable" is not protected

"Ecological," "green," "climate-friendly" - these and a few other terms describe supposedly sustainable investments these days. The problem is that these descriptions can be interpreted differently depending on the provider. So far, there are no uniform minimum standards that must be met.  

Lack of transparency and greenwashing as the biggest issue

Instead, investors: inside find a veritable spectrum of different variants ranging from effective to hardly sophisticated. In addition, there are repeated cases of greenwashing, in which companies merely pretend to act sustainably. The broadness of the term supports this development.

Sustainability criteria for funds and COs: ESG system offers first clue

But how can financial investments such as funds be sorted in a target-oriented way? One approach is to use exclusion criteria. ESG criteria are a well-known method. The abbreviation comes from English and describes the three areas of responsibility of a company:  

‍

• E - Environment  
• S - Social  
• G - Governance (corporate governance)  
  

The threefold division of responsibility serves investors: inside to be able to classify the term "sustainable" more precisely. The criteria provide an assessment of the potential environmental, social and governance risks of companies or funds that may have negative financial consequences for investors.  

Problem: Lack of indication of the impact of the investment

However, there are disadvantages here as well: The criteria do not indicate the impact of the investment. As an investor, you can only find out about the environmental, social and governance risks. However, you cannot specifically find out what impact your investment has.  

The problem is also documented by Finanztest in its 09/2022 issue, which shows that ETFs (3 sustainability points) score less points than actively managed funds (5 sustainability points) because they have fewer exclusions. Sustainable funds from the world equities, Europe and emerging markets groups were tested.  

Conclusion

The ESG criteria can offer consumers: inside an initial orientation possibility. However, if you want to invest specifically in a value-oriented way, it gets difficult. This is because providers of ESG investment products use different benchmarks for their products. This means that if a company uses ESG as a guideline, you cannot be sure whether it is actually operating in a holistically sustainable manner.  

Selecting sustainable investments best based on impact

Fortunately, you can still invest sustainably, because there is another method, the so-called "impact investment", which goes beyond the criteria mentioned. This investment approach aims to achieve a positive impact in an active and solution-oriented way. The key question is what impact the investment can achieve.  

The impact of the investment is therefore among the most important guiding questions when it comes to finding the right sustainable investments. The following questions can also be helpful:

• What effect can I achieve?
• How transparent is the work?  
• Where exactly does my capital go?
• What impact does my investment have on everyday life?
  

Simple value-oriented investing with Moniflo

Especially for beginners: inside, the spectrum of sustainable investments seems opaque and difficult to grasp. Can I therefore only invest money sustainably if I already have advanced knowledge? We at Moniflo are convinced of the opposite and have developed a solution for the lack of transparency.  

We want investing in sustainable funds to be possible for everyone. That's why we've developed a marketplace where you can easily invest sustainably. Instead of ESG risk criteria, the app uses a score that creates a simple yet complete picture of a portfolio or fund's impact and exclusion criteria.  

With Moniflo, you can easily see the impact of your investment(s) and avoid time-consuming research. To calculate the impact score, we work with Clarity AI, a provider of sustainable data. More than 60 relevant metrics linked to 52 SDG targets are measured - twice the number of metrics used by other impact score providers.  

You might be wondering what the abbreviation "SDG" stands for in the first place. In short, the term stands for 17 Sustainable Development Goals. If you want to learn more about them, you can read about them on our blog.

Invest money: Sustainable and fair with Moniflo

Even as a beginner: you can invest in green. Thanks to the clear presentation in the app and the "Impact Score" described above, you can find your way around even with less previous knowledge and find suitable sustainable funds that match your values.  

I invest "green"! Moniflo makes this possible. Find sustainable funds, aligned with your personal values. Would you like to be part of the app launch? Then simply sign up for the list and receive exclusive access in advance.   

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