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Finance: The crucial role of ESG

Sustainability is the topic of the century par excellence in the financial industry, and the pandemic has given it another enormous boost. What are the latest developments and what do they mean for investors? Renowned financial experts express their views.

Sustainable investments generate at least equally good returns as conventional ones. (Photo:

Today, investors no longer judge companies solely on the basis of traditional criteria such as return and risk, but increasingly also on the extent to which they integrate environmentally friendly, social and ethical aspects into their business activities and investments. The pandemic has reinforced this trend.

According to Swiss Sustainable Finance, another important driver for sustainable investments is the climate protection debate. This is also urgently needed, because the climate is not in good shape. To achieve the temperature reduction targets, global emissions would have to be halved by 2030.

Things are moving forward
However, there is also reason for optimism, because we are now dealing with a paradigm shift - that is, a fundamental shift by larger segments of society toward new ways of thinking and doing things. For example, Eva Cairns, senior ESG investment analyst at Aberdeen Standard Investments, sees Biden's entry into office, and with it the re-signing of the Paris Agreement, and China's surprise commitment to become carbon neutral by 2060, among other things, as giant steps in the right direction.

Returns and ESG: a trade-off?
For an investor, returns are an important criterion. The question is whether one has to sacrifice returns for sustainability. However, the clear majority of studies prove that investments managed according to ESG criteria generate better or at least equally good returns as conventional investments. According to Schwyzer Kantonalbank, there is even a positive correlation between returns and sustainability, i.e. ESG investments tend to perform better.

Innovative strategies
Today, there are a variety of ways to make investments sustainable. While a few years ago they were focused on equities, today they are available in many asset classes. Investment approaches range from exclusion strategies and engagement approaches to best-in-class and thematic approaches. For example, one can invest in thematic funds that focus on changing mobility toward clean alternatives such as electric cars and related technologies. George Saffaye, global investment strategist at BNY Mellon Investment Management and responsible for mobility innovation, believes that demand for electric cars will continue to grow in the coming years and that technological advances will make batteries competitive by 2023/2025. This opens up interesting investment opportunities.

For gold investors, so-called "green gold" is an interesting alternative. Since January 2012, every gold refiner accredited with the London Bullion Market Association (LBMA) has had to implement the strict principles of the guide issued by the LBMA. The guide provides for strict controls to combat, for example, money laundering and disregard for human rights. Active investors such as Invesco are also exerting their influence on mining companies in which they hold shares toward ESG. Holding engagement meetings with companies in which they invest is now common practice among leading ESG asset managers such as Nordea Asset Management and Aberdeen Standard Investments.

Read the entire article in Prestige Magazin (in German).

Published on 19. March 2021 by Martin Arnold