Take a closer look at the product information sheet to determine how “green” the investment product really is and whether it corresponds to your own ideas of a sustainable investment.
It is always advisable to ask your financial advisor for a sustainability rating, but keep in mind that there are currently no uniform standards regarding ESG ratings and instead products that correspond to the EU taxonomy are usually used as a reference. The Taxonomy is a special classification system that creates at least a unified understanding of the sustainability of economic activities.
Ask your financial advisor to explain the sustainability approach to you in detail and make sure to ask them questions on the topic in order to obtain unbiased advice towards investment options.
Do you have significant knowledge of climate science and climate risk as it relates to investment analysis (e.g., an understanding of the differences between physical and transition risks and their characteristics)?
Are you familiar with the work of various industry groups that focus on ESG/sustainability (e.g. PRI, Climate Action) and regulatory disclosure requirements from IFRS, ISSB and others?
Before you invest in an equity fund, you should consider the following:
Documents such as the prospectus, the investor information (KIID) and the website of the funds or the fund company about the most important points for you, e.g. costs, risk etc.
Check the investment policy, the investment objective and the fund volume (larger funds correspond to better chances of seeing a return in the long-term).
Whether the fund is active or passive (if active, check whether the fund refers to a benchmark and past performance). It should be noted that past perfomance is only used as reference to reaching benchmark and not an exclusive indication of success for the future.
You should also consider the fees, inflation rate and effect on returns as well as whether the fund product offered is classified as UCITS fund (which usually offers more transparency).
Returns – As a growing industry, sustainable assets and funds worldwide are seeing an increase of net returns, despite those who have previously avoided sustainable investing, fearing it would reduce returns. While a growing body of research suggests that even so-called sustainable funds do not perform worse than traditional funds in terms of the achievable return, you should always base your decision on your personal circumstance, risk appetite and goals.
Risks – Investing in solar systems or wind farms has repeatedly shown in the past that sustainable investments for example are not associated with lower risks than classic products. You should check this carefully before investing.
For further information on terminology, definitions etc. used throughout this guide, please refer to our glossary here.
You can find out what greenwashing means and how to spot it as an individual retail investor as well as the steps you could take to prevent your involvement in such practice here.
Keep in mind that when a company announces a commitment to human rights or clean energy for example, it doesn’t necessarily mean it will follow through and you should use your rights as a shareholder to engage with the company whenever possible. For further stakeholder engagement guidelines please see here.