If people are given the facts about the potential negative effects of their investments, they will be prepared to take action, Andrea Ferch, Head Sustainable Investments at LGT, says.
Andrea Ferch, why is transparency such an important factor in sustainable investing?
Although a growing number of investors are becoming interested in sustainable investing, not that many people are actually invested in this segment yet. This is mainly because the necessary transparency, or in other words, readily accessible information is lacking.
For private investors, it’s usually not immediately apparent if the equities they hold are in companies that foster sustainable development with their products, or whether the exact opposite is the case. It may well be that investors who donate to cancer research out of conviction are at the same time investing in companies such as tobacco producers without knowing it.
That would mean they are invested in a way that goes against their personal convictions.
Yes, and this actually happens quite often. This is why it’s important that financial institutions become more transparent and that the problem created by the lack of information be overcome.
«Getting transparency is indeed not easy»
If people are given the facts about the potential negative effects of their investments, they will be prepared to take action.
And you think this will work?
Absolutely. I have yet to come across any investors who deliberately and specifically invest in companies that have a massive negative impact on the climate and the environment or whose products cause considerable damage to health. This transparency is necessary in order to be able to reconcile investments with a person’s values.
As an investor, how can I find out how sustainable my portfolio is?
Getting transparency is indeed not easy. Unlike institutional investors, who obtain information from specialized data providers, private investors generally do not have this kind of access. Banks are therefore called upon to make the necessary information available to their clients.
«No, we don’t buy ratings that have been prepared by third parties»
In our securities account statements, we provide our clients with sustainability ratings for the individual positions in their portfolio and the carbon footprint of their equity investments. This gives them initial points of reference that they can work with.
And you obtain these sustainability ratings from external rating agencies?
No, we don’t buy ratings that have been prepared by third parties – we have developed our own rating method that we use to assess equities, bonds, funds and ETFs. The rating incorporates raw data from six sustainability data providers.
Do you already have enough data to be able to comprehensively assess a company’s sustainability, for example?
We have key figures and information on a large number of companies. This ranges from data such as CO2 emissions and information on social matters, such as health and safety standards, to details about negative incidents like cases of serious corruption. In addition, we use information that shows the impact of companies’ products and services on people and the environment.
«Nevertheless, we do not rely blindly on the data»
This enables us to do a comprehensive assessment of a company’s sustainability. We can calculate the environmental footprint of a portfolio and determine the contribution that investments make to the United Nations’ 17 Sustainable Development Goals. Our clients find this very interesting.
And what about the quality of this data?
That’s a very important point. The data must be high-quality in order to make reliable statements. The good news is that there have been a lot of positive developments in recent years in terms of data quality. Nevertheless, we do not rely blindly on the data, but also carry out plausibility checks.
What advantages do your sustainability analyses offer private investors?
On the one hand, investors can avoid investments that go against their personal values or are controversial from a sustainability perspective. And not just for moral reasons. Sustainable investments are also attractive from a returns perspective After all, companies that act with disregard for massive environmental damages caused during their manufacturing process not only harm humans and the environment, but also their reputation and their returns.
«Such companies can offer enormous growth potential»
On the other hand, it is possible to specifically select investments that contribute to solving global challenges. If, for example, climate protection is a major concern for you, you can selectively invest in companies that contribute to the energy transition through their products. Such companies can offer enormous growth potential.
So taking sustainability criteria into account also brings a financial advantage?
In addition to the benefits for people and the environment, higher returns are one of the major advantages of sustainable investing. The misconception that sustainable investing means sacrificing returns has long been debunked. Many studies show that sustainability brings clear financial advantages. I’m convinced that taking sustainability criteria into account will become increasingly important for successful investing.
«A few decades ago, organic food was a small and sometimes ridiculed offering»
In addition, long-term trends offer attractive investment opportunities. Just think of organic food: a few decades ago, organic food was a small and sometimes ridiculed offering carried in specialized stores, but today even the discount supermarket chains are generating a lot of turnover with it.
It is still difficult for private investors to understand how sustainable an investment really is and how their own investments impact the environment and society. The ESG criteria – E stands for environment, S for social and G for good corporate governance – have established themselves as key assessment figures in the financial sector. For the non-professional investor, however, this data is not easy to access. Andrea Ferch’s team solves this problem: she has been working at LGT since 2007 and heads the team that is responsible for sustainable investing.
