When you invest in a sustainability fund at a major bank, you probably expect your money to go into things like wind power, electric car manufacturers… That’s the whole point, right?
But there’s a big flaw in the way most banks and financial institutions approach sustainable investing. As a result, companies with little to do with sustainability can unknowingly be included in your sustainability fund.
A classic example is the Chinese e-commerce platform Alibaba (one of the world’s leading source of cheap gadgets and throwaway fashion), which has a prime position in the ‘emerging markets’ sustainability fund of a multinational Swiss bank.
Alibaba in a sustainable investment fund?? How did that happen?
That’s the million dollar question. A common pitfall we see is that many sustainability funds rely almost exclusively on ESG scores. These put a lot of weight on operations within a company, and the supply chain up until the product leaves the company premises. There’s little consideration for the product itself, or the impact that product has on the world.
In other words, they analyse how a company does business, sometimes overlooking what that company does, or the wider implications of that business model.
Important note: This does not automatically mean that Alibaba is a bad company. Amongst its many initiatives, Alibaba has programmes to protect rivers, and reuse packaging. It even earmarks 0.3% of its annual revenue to encourage conservation. But looking at the bigger picture, as a person who wants to invest in a sustainability fund, do you want a large portion of your money going into a company that facilitates the mass consumption of cheap gadgets and throwaway fashion?
Are sustainability funds all like this?
It’s difficult to know the full extent of this issue, because fund managers rarely provide a full breakdown of the companies included in any portfolio, including sustainability funds. Instead, they tend to only list the 10 biggest (around 25 percent of the portfolio). That’s how we know companies like Alibaba are in there. But what about the other 75 percent of that portfolio? In most cases, this information is kept away from investors. Transparency is a big issue for us, and we plan to explore it further in a future article.
How does Inyova decide if a company fits your values?
The big picture: When assessing companies, the first question we ask is: “Does this company promote the kind of world this customer would like to live in in the future?”. That includes how the company does business, but also what it does, and how this fits with the kind of world you want to live in.
The laser beam: If a company passes that test, we take a deep dive into raw Environmental, Social & Governance data from our independent research specialist. Making our own comprehensive assessments, we fill the gaps in this ESG data by also considering the company’s product impact, its momentum score, and more. We detail these issues in our article: Greenwashing in Impact Investment? Here’s how we fight it.
Transparency: Before you invest with Inyova, you will see exactly where your money is going. You see the full list of companies, and what share they take in your portfolio. This is different to many sustainable funds, where you typically know about 25 percent of the companies in your portfolio.
Personalisation: The beauty of our approach is that your investment is unique to you. Using our easy online tool (get your personalised impact investing strategy here), you pick the sustainable and socially responsible investment themes that are most important to you. Then, we show you exactly what stocks are a fit. You can remove any companies you don’t love, and adjust your risk profile. With every adjustment you make, our algorithm makes sure your portfolio is financially sound.
Want to test us out?
The first step is to get your personalised impact investing strategy – it’s free and non-binding (coming soon for EU customers!). Using our easy online tool, you pick investment themes based on your personal values and interests. We show you exactly what stocks you can invest in. You can also adjust your financial goals and risk preferences. With every adjustment you make, our algorithm makes sure your portfolio is financially sound. This way, you can control where your money goes – without compromising your returns.
Get your personalised impact investing strategy here – it’s free and non-binding.
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Disclaimer: Past performance of financial markets and instruments is never an indicator of future performance. The statements or information contained in this document do not constitute a recommendation, offer, or solicitation to buy or sell any security or financial instrument. Inyova GmbH assumes no liability whatsoever with regard to the reliability and completeness of the information contained in this article. Liability claims regarding damage caused by the use of any information provided, including any kind of information which is incomplete or incorrect, will therefore be rejected. Furthermore, the statements contained in this document reflect an assessment at the time of publication and are subject to change. References and links to third party websites are outside the responsibility of Inyova GmbH. Any responsibility for such websites is declined.
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