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How sustainable investing creates added value
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Feb 17, 2020
A bank note folded to form a butterfly.

As a platform, Innovestment feels committed to the sustainability goals of the United Nations. And this puts us in the (mega-)trend, as investors are increasingly focusing on sustainable investments. On the one hand because, for example, the EU is adopting measures that promote sustainable investments and on the other hand because they do not necessarily mean a reduction in returns. On the contrary, sustainable companies are sometimes very clearly outperforming their less prudent competitors in terms of performance and share price.

Ethos

We are convinced that this need not be a foreign word for a company. At this point we would like to give you a brief insight into our philosophy and explain what Innovestment stands for. We feel committed to a Corporate Social Responsibility (CSR) that can be broken down into a striking formula: It does not have to be a contradiction to create financial added value while taking into account and transporting more value than conventional forms of investment usually do. One can act entrepreneurially and at the same time assume sustainable responsibility.

What does a FinTech like Innovestment have to do with sustainability?

In view of the fact that the industrial revolution brought mankind an enormous boost in prosperity, but unfortunately also led to environmental pollution and species extinction, we see sustainability as an expression of our corporate philosophy and our respect for people, society and the environment. For us, corporate social responsibility means living economic, ecological and social sustainability. We therefore feel it is our personal and corporate responsibility to orient our actions in the long term and with a clear view of their effects. 

So we need to ask ourselves how Innovestment can help make the world a better place and treat the people around us fairly and with dignity. And how, at the same time, we can offer investors an alternative that does not sacrifice returns.

Targets for sustainable development / Sustainable Development Goals (SDG)

"Sustainability" may be a buzzword, but let's make it concrete: orientation towards the United Nations' goals for sustainable development, the 17 Sustainable Development Goals (SDG, more on this in the glossary), form the basis for our own activities and for the demands we make on our projects. In our case this means that we 

  • promote sustainable, broad-based and sustained economic growth, full and productive employment and decent work for all 

  • build a resilient infrastructure, 

  • promote broad-based and sustainable industrialisation and support innovation, 

  • ensure access to affordable, reliable, sustainable and modern energy for all, 

  • take immediate action to combat climate change and its effects, 

  • build on partnerships to achieve our goals and 

  • achieve gender equality.

And these principles play a role both in the selection of companies financed through Innovestment and in our personal actions. For us, this does not primarily mean an economic advantage, but corresponds to our ethical demand for a fair, equal opportunity society, which is characterized by value-creating cooperation between its participants. 

Apparently, people want to know whether and to what extent the companies in which they invest take the issue of sustainability into account. Many people explicitly want to support projects that meet at least one of the sustainability goals, especially in Europe and Asia. We agree with this. Already in the initial contact phase, we identify the potential of our portfolio companies and encourage the implementation of the SDG during the cooperation. In order to make the goals visible to our investors as well, we work with the official SDG symbols of the United Nations in the project profiles.

Sustainability also leads to sustainable returns

Sustainability and impact investing are one of the major trends in asset management in recent years. And rightly so, as some figures suggest. According to the UBS Investor Watch (article in German), which considered more than 5,300 investors from ten countries, 42% of German investors hold sustainable investments in their portfolios, with the Chinese leading the way with 60%. Although it must be said that all respondents are "high networth individuals", i.e. extremely wealthy people. Nevertheless, the expectations and underlying considerations of the respondents are extremely revealing, as "82% of them are convinced that the returns on sustainable investments are equal to or even exceed those of classic investments. Investors regard companies that operate sustainably as responsible, well-managed and future-oriented - and thus as good investments. 56% of German investors expect sustainable investments to be the standard in ten years' time. This is understandable, because companies that overexploit nature, for example, may be able to make enormous profits in the short term, but laws and corresponding claims for damages pale the prospects for returns in the future. Those who are already committed to sustainability are preparing themselves for the competition of the future, which will be under the influence of stricter laws. 

The swarm intelligence does not seem to be mistaken, because according to Chapter 6 of the Global Financial Stability Report of the International Monetary Fund (IMF) of October 2019, the performance of the approximately 1,500 sustainable funds that, according to CNBC, manage almost USD 600 billion in assets, is comparable to that of conventional funds. Depending on the definition, it can also be a lot more money, as the IMF talks in its blog about three to 31 trillion US dollars invested in ESG funds (ESG = Environmental, Social, Governance). This is how financial institutions describe their sustainable funds, which only take into account those companies that take environmental, social and good governance issues into account. It is inevitable that this asset class will grow rapidly, as the EU is also pressing for sustainability to be given greater consideration in portfolio structuring. At the end of 2019, the EU Parliament and the EU Council agreed on a corresponding package of measures to promote sustainability in the financial sector, as reported by Das Investment (article in German).

It should be noted that there is still a gap between the financial commitment of institutional and private investors. As the Forum Nachhaltige Geldanlagen e.V. announced in mid-2018, the sum of sustainable investments in Germany reached a record level of 171 billion euros (website in German), an impressive nine percent more than in the previous year. However, up to now it is mainly institutional investors who have been focusing on the topic of sustainability (website in German), as a study by the Institute for Sustainable Investments (NKI) from 2017 revealed - possibly because private investors simply do not know that these alternatives exist. 

CNBC speaks of a mega-trend, but it will remain because, as Saxo Bank's Chief Economist Steen Jakobson notes, there has been a paradigm shift from growth to climate and environment, both among citizens and governments. 

But sustainability does not reduce returns at all. Companies such as Tesla may still have to prove that they will one day be able to produce in large quantities, but in terms of market capitalization the Palo Alto-based company has long since left the major German manufacturers, which primarily offer gasoline and diesel, behind and has recently become the second most valuable car manufacturer, with only Toyota still a long way off. Tesla's shareholders therefore have high hopes for the future of the company and a world that simply has no alternative to sustainability. 

Siemens, for example, is now also considered a green company. At any rate, it is included in the Carbon Clean 200 Index, which lists the 200 largest publicly traded companies with a market capitalization of at least one billion US dollars that generate at least ten percent of their revenues from green technologies. As a result, the performance of these companies is three times better than that of companies with little or no green, writes The Guardian.

Why the SDG is also reflected in our actions

Because Innovestment itself is also a company, we apply the same standards to ourselves. You can read about what we do in concrete terms on our Corporate Social Responsibility page. With our approach, we already meet the EU taxonomy guidelines, which define what a sustainable, green financial product is. Because we believe it is the only right approach and we are committed to living sustainability and offering investments with a clear conscience that generate more than just monetary returns. Because more value can create added value.

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