You hear "ESG" so often that it could soon be hanging out of your ears like a pop song being played up and down. In fact, few people invest in such products.

The trend towards greater sustainability is spreading across all sectors. This development has also found its way into the financial sector. A study by the Lucerne University of Applied Sciences and Arts shows that today sustainable funds manage assets of 157 billion Swiss francs. 423 funds throughout Switzerland take ESG criteria into account in their investment process, compared with 131 funds a good ten years ago. But despite this "hype", sustainable funds approved for public distribution in Switzerland account for just under 3% of the total market. There is still room for improvement.

Three letters with seven seals

This could be due to the lack of clarity about the definition of these three highly praised letters "ESG". Although they are now part of the technical jargon, it is often unclear what exactly is behind them. The confusion surrounding the term is due to the vastness of the ESG definition. There is no clear definition for ESG. In order to understand what is meant, the sustainability process of each individual provider of ESG products must be examined separately.

Suppliers must work their way through a jungle of data to finally conscientiously award the ESG label to a product. They use this data to create ratings and indices, which are then used by portfolio managers for stock picking. However, the key to deciding whether to invest in a company is personal dialogue with the companies themselves. This is simply because the raw data can be incomplete. Ultimately, it is the responsibility of each portfolio manager to carry out stockpicking successfully and to interpret the data and ratings correctly in order to have this "impact" without losing sight of the return.

The argument of critics that sustainable investments have a negative impact on performance can be dismissed. But the actual impact on the environment remains controversial. Of course, from an investor's point of view it cannot be expected that fewer cars will be produced as a result of a sustainable fund. In the long term, however, such an investment is certainly more sensible than investing in oil companies. If only to encourage them to come up with a strategy for a world where fossil fuels are scarce. Until this is the case, "ESG" will probably - and rightly so - remain a permanent fixture in the hit parade.