The EU wants to educate Germans about ecological investments. But very few know what is meant by sustainability. Therefore, clarification should now be provided.
KThere is one issue that divides investors as much as the EU’s Sustainable Investment Plan. On the one hand, a number of fund companies think it is good that the European Union has recognized the signs of the times and wants to increasingly direct the flow of money to where climate change can be combated, the environment protected and waste reduced.
On the other hand, a group of asset managers feels patronized and does not want Brussels to dictate which criteria they should use to invest the money. In addition, the opponents of the EU Action Plan fear that a green financial bubble could result if presumably sustainable products are to be given preference in principle without their risks being adequately taken into account.
Regardless of how you feel about green investments, it is undisputed that the catalog of criteria for the financial industry presented at the end of 2019, called “taxonomy” by the EU Commission, has obvious weaknesses. It is true that it is worth honoring the attempt to limit the wild growth under the term sustainability and to clearly define what is green and what only pretends to be green. But so far no more than one compromise has emerged. Above all, it has not yet been decided whether nuclear energy is to be regarded as climate-friendly, as the nuclear power France in particular claims, or not, according to German opinion. The EU Commission may classify nuclear power and natural gas as so-called transition technologies and grant these energy sources at least a certain remaining term in the sustainable investment.
More than just a fashion issue
The EU also holds asset managers and financial institutions accountable in other ways. In future, you should actively ask every customer whether and to what extent they are interested in sustainable products. That means: Anyone who goes to their bank advisor as a private investor in the future not only has to be clear about their risk appetite, but also, for example, whether they prefer to buy shares in a conventional fund or in one that excludes climate offenders and other dirty companies therefore it is considered sustainable. It is likely that the EU will not only focus on environmental protection in the final catalog of criteria, but will also incorporate social standards and good corporate governance. These three aspects are summarized in the industry under the acronym ESG (Environment, Social, Governance).
Many private investors seem to appreciate it when they are informed about sustainable investments. This is at least suggested by the results of a study by the fund company Fidelity, which the FAS has received. For the so-called responsibility barometer, which is recorded every two years in Germany, 3240 people aged 14 and over were surveyed last summer. In the current survey, it was determined for the first time what would have to happen from the perspective of the respondents in order for them to invest in a sustainable financial product.
Almost two thirds said that ESG products needed to be made easier to understand. Half of the respondents wanted to be certain that the return on investment would not be smaller than that of conventional products. And almost one in two people would invest their money sustainably if their bank would specifically point them out to corresponding products. If the EU plans are implemented and the advisors are obliged to inquire about the green conscience of every investor, this shortcoming should disappear. “As an industry, we want and should be held accountable,” says Alexander Leisten, head of Fidelity’s German business. “Sustainability must not be a separate, fashionable topic, but of course has to be integrated into the entire investment process.”