Everything you need to know about sustainable investment

Knowing whether an investment is part of a sustainable approach is not always easy. The subject remains complex, the data provided by investment products is inconsistent and the terms used are not always easy to understand. Here are a few pointers to help you see things more clearly. 

Sustainable investment involves putting money into companies or financial products that incorporate not only traditional financial variables (valuations, company balance sheet quality, etc.) but also sustainability criteria, known as ESG criteria (Environment, Social, Governance). 

These ESG criteria correspond to the three dimensions of sustainable investment. Environmental criteria refer to the way in which investments can help to protect our natural environment (preserving biodiversity, improving energy efficiency, reducing carbon footprint and greenhouse gases, etc.). Social criteria refer to the way in which investments contribute to the development of a responsible society (working conditions, human rights, diversity programmes, etc.). Governance criteria refer to the way in which investments can help to establish sound governance of public and private bodies (culture and ethics, transparency, combating corruption, etc.). By combining these ESG criteria, it is possible to assess the level of sustainability of investments. 

Since March 2021, the SFDR (Sustainable Finance Disclosure Regulation), which aims to increase the level of transparency of sustainable investments, has required financial institutions to provide investors with precise information on the sustainable nature of their products. 

You can draw on several sources of information. The first is to carry out in-depth research into the company or investment project in question: its annual reports, its extra-financial performance statements, its official communications, independent analyses of the company, etc. In other words, if the company merely promotes its sustainable commitment without providing tangible proof, you have every reason to be suspicious.

The second is to analyse the scores and labels. The scores are awarded by international rating agencies specialising in assessing the ESG performance of companies. The best known are Trucost, Virgo Eiris, Morningstar, Sustainalytics and Innovest. As for labels, Luxembourg has an independent financial labelling agency, LUxFLAG. It has developed thematic labels: positive impact labels (Microfinance, Environment, Climate Finance, Green Bond) and sustainable transition labels (ESG, ESG Insurance Product, ESG Discretionary Mandate). 

But although these initiatives constitute an undeniable plus, they are not enough to form the basis of the choice of investment vehicle. For example, the rating agencies do not have a common frame of reference. The ratings given to companies can therefore vary greatly from one agency to another, which calls into question the reliability of these assessments. Labels are no panacea either. As with the rating agencies, the considerations can vary considerably from one label to another. What's more, a structure may very well incorporate ESG criteria without being labelled. 

If you have any doubts about the sustainability of an investment, the best thing to do is to enlist the help of experts who can help you choose investments that are in line with your values and sustainability objectives. And never forget that investing is always risky.  

To find out more about sustainable investment with ING, visit our dedicated webpage or speak to your Relationship Manager.

Keywords: rating agencies, sustainable approach, responsible approach, banks, ESG criteria, sustainable development, ESG, environment, governance, impact investing, ING, sustainable investment, labels, LuxFLAG, SFDR regulation, scores, social   

09/2023