Why it pays to invest in social and environmental responsibility

Maximum profitability with minimum investment is surely what the majority craves.

Thomas Osborne
Thomas Osborne
28 December 2022 Wednesday 23:45
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Why it pays to invest in social and environmental responsibility

Maximum profitability with minimum investment is surely what the majority craves. But not everything comes down to that when putting money to work. It is increasingly common to opt for companies or products that are responsible with the environment, socially and at work, and with a management to match. In short, they meet the ESG criteria.

Since August, it has been mandatory for entities to ask customers about their sustainability preferences in the suitability test. This modification of the MiFID II regulation has given a boost to these acronyms, "and in 2023 there are new regulations that will continue to promote it," says Sonsoles Santamaría, director of the Tressis sustainability committee. Do not make the mistake of thinking that it is simply being green. Yes, the first letter responds to the environment (from the English environment) and it gets a lot of attention, but the other two are for the social aspect –during the pandemic it became more relevant– and governance. Fiscal practices, compliance with regulations, diversity quotas among employees, salary equalization, customer and supplier care are valued... "He is going to do things well," includes Santamaría.

To know what follows the criteria and what does not there are two props. On the one hand, the regulatory current, such as the European taxonomy; on the other, the classification of investment products. Based on the SFDR legislation on sustainability information, it is necessary to point to those that are classified as "article 8 and 9", in a simile of product classification according to its sustainability objective, something that is detailed in its file. To refine the shot, it is recommended to analyze the portfolios, because one can have their own criteria. "The European taxonomy includes the nuclear as green, and one can see it as it is not...", they exemplify in Tressis.

Looking through a magnifying glass is also an insurance to avoid greenwashing, the green washing of images with which some sell themselves as more responsible than they are. “The key is information, information and information”, reiterates Cristina Martínez, manager of savings and investment products at Triodos Bank. "It has to be a complete cycle, from the first contact to reports that are easy to understand for the investor, showing that it meets their preferences." Funds are the most comfortable tool for investing, both for their financial and fiscal sense, argues Santamaría.

And does all this translate into more profitability? “Surely they achieve a return similar to the market, but they show more stability, less volatility and contribute to promoting good practices”, reviews Santamaría. "It will yield more robust returns in the medium and long term," she emphasizes. "The market today ends up rewarding the transition to a more sustainable model and helps mitigate risk," believes Martínez.

In the search for sustainability, some are ahead. “Europe has long been the world center of responsible capitalism. The war in Ukraine has certainly complicated things. For some, it has compromised the green agenda”, points out Álvaro Antón, head of Iberia in Abrdn, in an analysis. This year, paradoxically, the oil and arms sectors, with little ESG on paper, have been among the best performers. The debate arises: is it necessary to reformulate the portfolio? It is something specific, due to exogenous factors, the sources point out, which in the long run are not the trend. “Ecological ambitions have not only not changed, they are now fully aligned with those of achieving energy sovereignty”, Antón states. “As a society we are positioning ourselves towards a change in the energy model”, Martínez redounds. Thus, what today is rewarded by the context, in the future will be harmed. "You have to differentiate the practices", continue in Tressis.

Beyond the trends, for some it is something that is already internalized. Especially among young people, who are proactive and who ask to invest more responsibly. "They are more committed to the climate crisis," says Martínez. But in more adult ages there is also a pull, reacting when the subject is proposed when planning the investment. Without stopping, he becomes part of all of them.