The idea of sustainability permeates all areas of daily life, including financial investments. This is how you can invest in sustainable funds and ETFs.
If sustainability is important to you in your investments, you can opt for sustainable funds and ETFs. Yield and security remain important aspects for the selection even with these investment opportunities. To ensure that the funds or ETFs are actually sustainable, you should pay attention to a few characteristics. The term sustainability has not yet been uniformly defined for the funds.
Identify sustainable funds
If you want to invest sustainably, you can choose between classic investment funds and ETFs. Since there is still no uniform definition of sustainability, it is sometimes difficult to identify such funds. They often have name suffixes that indicate:
- sustainable as an English word for sustainable
- ethical
- green
- SRI for Social Responsible Investment, socially responsible investment
- ESG for Environment, Social and Governance
The criteria for sustainability include environmental protection and environmentally friendly production, humane working conditions, fair wages, renunciation of child labor and rejection of corruption.
Investment approaches and composition of sustainable funds
The sustainable funds and ETFs contain shares in companies that operate sustainably. Such funds are often diversified, as they contain shares in companies from different countries. When assembling the funds, the fund companies use different approaches:
- Exclusion criteria to exclude certain industries, such as armaments, nuclear power, coal or oil
- Positive criteria for investing in certain areas such as renewable energies, education or environmental protection
- Best in class to invest in companies that are the best in their industry from an ethical and environmental perspective
- Commitment to social and environmental improvements
What you should consider when investing in sustainable funds
If you want to invest in sustainable funds, you should keep an eye on the investment criteria of return and security. Find out how the funds have performed in the past. The launch date and the fund volume can provide conclusions about the profitability of funds. If a fund has existed for several years and has a fund volume of several hundred million euros, it is considered to be profitable.
Also take a look at the composition of the fund, i.e. which companies are actually part of the fund and with what weight. Also pay attention to the development of returns in the past. In terms of fees, sustainable funds do not differ from other funds. The fees for ETFs are lower than for actively managed mutual funds.
Sustainable ETFs as an alternative to actively managed investment funds
Sustainable ETFs are a good alternative to actively managed investment funds. They represent a complete index, for example the MSCI World SRI with the shares of sustainable companies worldwide. ETFs are also cheaper than traditional investment funds.
Don’t put everything on one card
When investing in sustainable funds or ETFs, it is also important not to put everything on one card. You can use sustainable funds as an addition to your portfolio. You can hedge your portfolio by additionally investing in bond mutual funds or bond ETFs. A fixed deposit account can also serve as security. A mixture of shares in sustainable companies from different countries is also suitable.
