Impact and Sustainable Investing
Refers to an investment strategy that considers environmental, social and governance (ESG) aspects alongside traditional valuation criteria in making investment decisions.
Frederik Carstensen reports on the workshop with Prof. Dr. Falko Paetzold – Sustainable investment maximizing positive impact.
On Saturday afternoon, the group participated in a workshop on Impact and Sustainable Investing hosted by Dr. Falko Paetzold from the Center for Sustainable Finance & Private Wealth in Zurich. We started off by defining the meaning and framework of sustainable investing and it became quite clear from the beginning that there were contrasting views on the subject and that personal preferences play an important role. For example, some people tended to be more interested in societal aspects whereas others placed more emphasis on financial aspects. It was not only crucial to understand the idea behind sustainable investing but also to detect the tools required for one’s specific needs.
Sustainable Investing:
An investment process that includes social, environmental, governance, and / or ethical considerations, together with traditional financial risk / return considerations.
The opening speech was followed by break-out sessions where smaller groups looked at individual funds, analysed their holdings and their suitability for different types of investors. Lesson learned: there are several ways to achieve impact. For example, through screening and exclusion. By excluding funds or sectors from the investment universe, one can already achieve an impact. Industries such as alcohol and tobacco, weapons or fossil fuels for example are considered less sustainable and an impact can be achieved by avoiding them. Another crucial aspect is the integration of ESG criteria in the selection process.
By evaluating a company’s sustainability profile, one can favour one company over the other. “Active Ownership”, which means to actively engage with the management of the firms, e.g. by voting for or against societal aspects at a company’s annual general meetings can also have a significant impact. Finally, investments in thematic funds can make a significant difference. In this case an impact is achieved by providing capital to firms that aim to solve an environmental or societal problem (e.g. water supply, micro credits to farmers). Whichever solution is opted for, it became clear that investing for impact is more a process, rather than an outcome.
Impact is the difference between what would have happened without the activity and what actually happened because of the activity over a period of time.
