For a long time, sustainable financial investments such as those in renewable energies were a niche market. Too little return, just something for eco-fans, not in the focus of banks and investment consultants - for various reasons, such investments did not find their way into investors' portfolios easily. But that has changed enormously. Investing in an environmentally friendly way, for example with the aim of reducing greenhouse gas emissions or promoting low CO2 technologies, has become a trend. Word has got around that sustainability and profitability can go hand in hand. What is the reason for this?
The market for "sustainable finance" has grown enormously in recent years. In Germany alone, the volume of sustainable investment rose by more than 70 percent between 2014 and 2018 (source: Bundesbank). The Market Report 2020 (source in German) of the Forum Nachhaltige Geldanlagen speaks of an increase of 23 percent in sustainable investments compared to the previous year and a total of 269.3 billion euro. In 2019, private investments will have grown by 96 percent.
In the field of renewable energies, investments directly mean more capacity: according to Bloomberg New Energy Finance and the Frankfurt School of Finance, 184 gigawatts (GW) of renewable energy facilities can be built through the investments made in 2019. This is 20 GW more than in 2018, corresponding to the capacity of 74 medium-sized coal-fired power stations.
There are several reasons for this:
They have become lucrative. Solar electricity is now cheaper than electricity from a new coal or gas power station. In some countries solar plants are now considered the cheapest form of electricity generation. In other words: thanks to the low generation costs, profits can now be made with wind power, photovoltaics and bioenergy. Of course, this also affects the attractiveness as an investment object (source: Handelsblatt)
They assert themselves. In the first half of 2020, for the first time almost half of Germany's electricity consumption came from renewable energies such as wind, solar, hydro and biomass ensured that almost half of the electricity consumption in Germany was covered by green electricity for the first time in the first half of 2020. For the sake of good order: this is not only due to the expanded capacities, but also to the fact that demand for energy fell during the lockdown - especially in industry. Between March and June 2020, a good 15 billion kilowatt hours less electricity was consumed than in the same period in 2019 (source in German).
They show strength even in the crisis. Sustainable investments performed better than some global companies during the stock market slump. This applies not only to shares and equity funds. Green bonds also continued to perform well, and some operators of wind and solar power plants even posted gains. Sustainable investments performed better than their conventional counterparts during the stock market slump in spring (source: Handelsblatt, Neue Zürcher Zeitung).
They have arrived in public. Personalities like Greta Thunberg and her Fridays for Future movement have attracted worldwide attention of a kind that neither activists nor politicians have ever been able to reach. And this especially among the younger generation, who may be even less financially strong, but are the investors of the future.
They are needed. Originally, the German government had decided that the share of renewable energies in the German electricity mix should be 40 to 45 percent by 2025. The target was already reached in 2019, so the figures have been adjusted: By 2030 this share is now to be increased to 65 percent. The EU climate targets have also been raised. In addition, conventional energies will soon become expensive: companies that bring heating oil, natural gas, petrol and diesel onto the market will have to pay a CO2 price via the new national emissions trading system from 2021. All the more reason to take low-emission paths.
They are in demand. Already today, one in ten euros is invested in sustainable financial assets. By 2025 it will be one in four. According to a study by Puls Marktforschung on behalf of Quirin Privatbank, 20 percent of private investors plan to invest completely sustainably in the future. "In the coming years, we expect a further boost for the sustainable investment of private investors," says Volker Weber, Chairman of the Board of the Forum Nachhaltige Geldanlagen. "If customer advisors in banks and savings banks as well as independent financial brokers have to ask their customers about their interest in sustainable investments in the future, the commitment of these investors will continue to increase.
At present, institutional investors are by far the most important supporters: their market share is around 89 percent. Church institutions and welfare organisations account for 27 percent of this, insurance companies for 19 percent and the public sector for another 17 percent. Banks with a focus on sustainability are also gaining ground: they now account for around 15 percent of sustainable investments (source: Forum Nachhaltige Geldanlagen).
Sustainable investment is also becoming increasingly important in the venture capital sector. The first fund of the Swedish VC Norrsken was 25 million euros. The successor, which is currently on the market, already has a volume of 100 million euros. The companies in which investments are made must be oriented towards the Sustainable Development Goals (SDG) of the United Nations. However, there is little room for private investors: due to the regulations of BaFin, the minimum investment is 200,000 euros (source: Handelsblatt).
Demand is high, especially now. In the above-mentioned study for Quirin Privatbank, a third of those surveyed say that the corona crisis has encouraged them to pay more attention to sustainability in their investments. The impressive success of the Hamburg-based Tomorrow Bank also speaks for this: in just five hours, the sustainable Neobank was able to raise three million euros in October 2020 (website in German). A good business idea and a strong community made the servers glow - and private investors were able to participate even with small amounts of money. This shows how important the democratisation of financial investments, which is also demanded by Innovestment, is, enabling people to invest sustainably even with smaller amounts and thus to spread them more widely (diversification).
If interest in sustainability and climate protection is so high, what does that mean for business?
"In the past, it was often said that one must be able to afford sustainability, i.e. that only financially successful companies could invest money in environmental and climate protection. Today, there is a growing realisation that corporate management based on the principles of sustainability is not the consequence but the root of economic success," Rolf D. Häßler, Managing Director of the Institute for Sustainable Investments (NKI), told the Frankfurter Rundschau newspaper.
Accordingly, numerous and well-known companies are now stepping on the gas in the figurative sense. For some, however, the question arises whether it was sent of its own accord or under pressure from outside. The Handelsblatt distinguishes here between pioneers and market successors.
"If companies like BP did not invest in renewables now and successively cut back its oil and gas production, it would run the risk of losing touch", writes Kathrin Wisch in her essay "Pioneers, pioneers and imitators: why the climate economy is finally booming".
RWE is also making the change from brown to green because it has no other choice.
The startup industry has an easier time of it here, because they can position themselves sustainably from the outset. The German Startup Monitor 2020 reveals that more than 43 percent of young German companies are in the "green economy". About the same number see themselves as having a special responsibility as social entrepreneurs. With its new Accelerator Programme, the BMW Foundation Herbert Quandt is focusing on just these companies: Startups that bring economy and ecology together. As with the Norrsken Fund, the SDG is also used as a basis here.
And so the pioneers are transformed from exotics into role models, as defined by the Handelsblatt: Companies that have geared their business to sustainable development long before the trend towards the "green economy". These pioneers did not first need the pressure from politics and society and proved to be "climate pioneers".
These include companies such as reconcept, which has been linking new energy projects with investors for over 20 years and has realised more than 230 renewable energy plants with an installed capacity of 370 megawatts during this time.
Like the Vereinte Energiegenossenschaft eG, which is creating the conditions for a decentralised green energy supply without subsidies. 24 efficient combined heat and power plants, three photovoltaic systems, one wind power plant, two LED projects and a separate green electricity tariff are proof of its success.
And like a Jäderberg & Cie, which not only saves a valuable tree from extinction with its Sandalwood Investments, but also contributes to climate protection together with large institutional investors such as the Harvard University Foundation, the largest sovereign wealth fund of the United Arab Emirates and the Church of England.
Good for the environment - good for the portfolio!