Ethical investments: How to invest responsibly?
- Max Faller
- Jun 19
- 3 min read
Amid today’s environmental and social challenges, ethical investments are increasingly sought after by investors looking to bring purpose to their savings.
Investing responsibly means prioritizing companies that positively impact the environment and society. These investments are assessed based on ESG criteria, which help measure companies' influence in these areas.
In this article, we will explore ESG criteria and ethical financial products, such as socially responsible investment (SRI) funds and green bonds.
Understanding ESG criteria
ESG criteria (Environmental, Social, and Governance) are the three fundamental pillars of responsible investing. They enable investors to assess companies based on their impact and contribution to societal challenges, going beyond mere financial performance.
Environmental (E) criterion: This criterion evaluates a company’s impact on the planet and its response to environmental issues. Environmental performance is assessed by examining factors such as CO2 emissions, recycling practices, and the use of renewable energy sources.
Social (S) criterion: The social criterion measures a company’s impact in areas like human rights, public health, and diversity. It assesses whether a company positively contributes to society, for example, by ensuring fair working conditions for its employees, hiring people with disabilities, or fostering social dialogue within the company.
Governance (G) criterion: The governance criterion relates to the practices and policies a company uses to make decisions, meet stakeholders' needs, and comply with regulations. This criterion is evaluated based on factors such as anti-corruption efforts, transparency in executive compensation, and the gender diversity of boards of directors.
These criteria allow investors to select companies that not only generate profits but also actively contribute to societal and environmental causes.
Responsible financial products
To incorporate ESG criteria into their portfolios, investors can turn to various ethical financial products. Among the most popular are SRI funds and green bonds.
1. SRI funds (Socially Responsible Investment)
SRI funds are investments aimed at balancing economic performance with social and environmental impact. These funds favor companies that have a positive impact on society or the environment by incorporating ESG criteria into their investment processes.
You can find SRI funds that align with your financial goals while contributing to the planet’s well-being. Additionally, SRI funds are often more resilient in times of crisis, as companies with strong ESG practices tend to be better at anticipating and managing risks.
2. Green Bonds
Green bonds, also known as environmental or climate bonds, are non-bank bonds issued on financial markets by companies or public entities to fund projects that support ecological transition. Examples include constructing sustainable infrastructure, reducing CO2 emissions, and developing renewable energy sources.
This type of bond ensures that the funds raised are exclusively used for green projects, with increased transparency around resource allocation.
Green bonds offer investors a secure way to support the ecological transition. France and Germany are leading European issuers of green bonds, and this investment type is growing to attract investors eager to fund eco-responsible projects.
Why choose ethical investments?
Returns and security: Contrary to popular belief, responsible investments do not mean sacrificing financial performance. Numerous studies show that companies adhering to ESG criteria tend to offer stable returns and present lower risks, thanks in part to better management of social and environmental risks.
Alignment with your values: Investing responsibly allows you to align your savings with your personal values. By prioritizing ethical investments, you contribute to a more sustainable world while supporting companies and projects that care about the well-being of future generations.
Anticipating regulations: The European Union, including Germany, is strengthening its standards on transparency and environmental responsibility for companies and investors alike.
How to start with ethical investments?
Define your priorities: Before selecting responsible financial products, it is essential to identify your investment priorities. Do you want to contribute to the fight against climate change, support companies promoting social inclusion, or invest in organizations with ethical governance practices?
Consult experts: Starting with ethical investments can seem complex, especially in a foreign country where financial products, regulations, and investment options may differ. Financial advisors specializing in Germany, particularly those working with expatriates, are well-positioned to guide investors towards ethical investments tailored to their needs.
Use labels and certifications: In France and Germany, various labels certify the responsible nature of an investment. The SRI label, for instance, is a reliable indicator for socially responsible investment funds. In Germany, the FNG-Siegel and Umweltzeichen labels also certify responsible financial products.
Conclusion
By considering ESG criteria, investors can support responsible companies and projects. Feel free to consult our advisors to explore the best responsible investment options tailored to your profile.
