Is it true that sustainable finance products, given their complexity, are only suitable for professional investors?
Sustainable finance products are not necessarily more complex than the other financial products. In order to also allow private players to invest in sustainable finance products, the European Union continues its regulatory efforts to enhance transparency in this area and build up trust.
In which sustainable finance products can one invest?
There are many different products that allow investors to invest in a sustainable manner. Here are a few examples:
- By buying shares, one can acquire part of a company’s share capital. The company can be chosen based on one’s own sustainability objectives. In addition to profit-sharing, the shareholders can also take part in important decisions concerning the company by using their voting rights during general meetings.
- Green bonds are bonds issued by companies or States to invest in projects whose goal is the creation of renewable energies or the fight against climate change.
- Social bonds are bonds issued by companies or States to invest in projects of social interest such as, for example, basic infrastructures (such as fresh water, pipelines, sanitation, transport, energy), access to basic social services (such as medical care, education and training), affordable housing, etc.
- Sustainable investment funds invest in various projects and companies which meet specific environmental, social and governance criteria. When choosing their investments, sustainable investment funds focus on responsible, ethical, social and ecological behaviour. A distinction is made between investment funds whose investment policy is based solely on ESG criteria and those that only partially invest in sustainable assets.
- One of these types of investment funds are sustainable ETFs (Exchange-Traded Funds). These ETFs replicate a given index which includes undertakings meeting specific sustainability criteria.
However, one should bear in mind that the choice of the appropriate financial product depends on one’s own personal objectives and risk appetite. It is recommended to be well informed before investing and to ask a financial advisor for advice.
Can labels help to make an investment decision?
As with most products, advertisements often praise financial products by indicating that they have been awarded a label. However, one should not blindly trust these labels and prior enquiries should be made about each label. The labels can indeed help to decide on sustainable investments because they allow investors to assess the performance of undertakings and financial products in the environmental, social and governance area and to identify products meeting their own sustainability preferences. There are, indeed, many different labels and each one is subject to specific requirements. It is important to ensure that they are issued by independent and reliable bodies and that the certification criteria are transparent and understandable. Moreover, the labels do not always provide a complete overview of the products’ sustainability and therefore they should be only one among many other factors helping to decide on sustainable investments.
Les questions qu’on peut poser au banquier concernant les produits durables
Since 2 August 2022, professionals offering investment advice and discretionary management services must consider their clients’ sustainability preferences. They must enquire about their clients’ preferences and level of knowledge regarding sustainable investments in order to be able to recommend investments adapted to their clients’ profile. The clients may take the opportunity to exchange with their advisor about sustainable finance. Questions that may be asked during this exchange include, among others:
- Which sustainable products that correspond to my profile and my sustainability preferences are offered by the bank?
- Are there certificates or awards that different products have received for their sustainable financial practices?
- How are the environmental, social and governance performances of the financial products measured?
- How does your bank ensure that the sustainable finance products it offers are transparent and accessible to clients?
- How does your bank ensure that the sustainable finance products it offers are in line with the European standards and directives relating to sustainability.
- How does the bank include the sustainable development goals in its overall strategy and its activity?
- How does your bank assess and measure the ecological and social impact of its investments and credit activities?
How does your bank treat the risks associated with investments in fossil fuels and other unsustainable practices
As with any other investment, one should make prior enquiries about sustainable products while being aware that everyone can contribute to the transition towards a more sustainable world with one’s own decisions.
Further information at:
https://www.abbl.lu/en/professionals/key-topics/sustainability
