Building up capital

4 questions about sustainable and responsible investing

The Covid crisis has revealed the fragility of our world in many ways. This unforeseen situation has forced us to consider our future and how we invest.

Whether or not the health crisis endures or not, challenges like climate change and inequality remain just as urgent as they were before last March.

1. What exactly is sustainable and responsible investing?

Sustainable and responsible investment takes the ecological, ethical and social impacts of your investment into account.

In other words, as a sustainable investor, investing your savings in companies whose products are potentially harmful to humans, the environment or society is a no go.

As a bank, ING notes that investors and regulators alike have broadened the spectrum of what can be considered a socially and responsible investment.

Currently, this viewpoint is summarised in three letters: ESG. The term is a collection of criteria in the areas of ecology (Environmental), society (Social) and good governance (Governance).

ESG investment criteria include not just deforestation and air pollution, but a range of other aspects: does the company respect the privacy of its employees and customers? Does it try to increase the diversity of its workforce?

2. How do I know if a company is sustainable?

Banks select sustainable companies that have a positive record due to a sustainable development policy. How do they do it? By using exclusion criteria.

ING does not invest in companies that, for example, violate human rights, fail to respect animal welfare, make controversial weapons, or take part in the deforestation of tropical rainforests.

Aside from excluding companies, sectors or countries, there are other strategies for building a portfolio in line with ESG criteria.

One simple way to invest sustainably is to do it through a sustainable investment fund. The fund manager does the work for you: using a definition of responsible investment and certain sustainability criteria, the manager selects the shares and/or bonds from which the most potential return is expected.

3. What kind of budget do I need for sustainable and responsible investing?

By opting for a periodic investment plan, you can start with an amount of 10 euros per month. With this plan, you will be making regular deposits into a sustainable and responsible fund.

4. What about the return on ESG investing?

The overwhelming majority of research in this area has concluded that there is a positive link between the financial performance of companies and their ESG policy[1].

Moreover, these companies appear to be less volatile in general (volatility is the degree of fluctuation in the markets). So, sustainable and responsible investing is potentially not only good for the environment and society, but also for the health of your portfolio as well.

Companies choosing a sustainable approach also have a better chance of survival over the longer term. This is because they are exposed to less risk. Two examples of reduced risk include: a company with a transparent purchasing policy having less chance of being involved in a bribery scandal; and organisations that innovate to reduce the ecological footprint of their factories being able to count on more support from their customers.

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