Never before has sustainable investing been so popular — this is also the case in Spain. It is high time to delve deeper into this phenomenon.
Sustainable investing is an investment strategy that focuses not only on financial returns, but also on social and ecological impact. So it starts with determining how you can and want to contribute to sustainability, and what your financial goals are. Then look for investment products that match both your sustainable and financial vision.
Please note: A term that is often mentioned in the same breath when it comes to sustainable investing is 'green investing'. However, green investing is not the same as sustainable investing. Both are sustainable, but only through green investing can you benefit from certain tax benefits. Green investing is done through so-called ‘green funds’. In this article we only focus on sustainable investing.
Sustainable investing is important because it goes beyond just making money: it's like investing in a better future for everyone. When you choose sustainable investments, you focus on companies that are committed to environmental conservation and that take their social responsibility. It is a way to combine financial success with positive changes in the world.
Sustainable investment products go further than just making a profit, to drive positive change. Consider, for example, companies with a strong focus on environmental friendliness, social responsibility, and good governance. A concrete example of this is investing in a company that focuses on developing sustainable energy sources, such as solar or wind energy. In short, sustainable investments strive to combine financial success with a positive impact on the world.
In sustainable investing you often come across abbreviations such as ESG and SRI. ESG stands for Environment, Social, and Governance. This means that when assessing investments, we look at how a company deals with environmental issues, social responsibility and good governance. Companies are often assigned an ESG rating, which should give the investor an indication of their level of sustainability.
SRI stands for Socially Responsible Investing, i.e. investing with a focus on social responsibility, through investments that contribute to a positive social impact and respect ethical values.
In addition to ESG and SRI, there are also a number of other relevant abbreviations within sustainable investing. For example, a common term is ESGR, where the 'R' stands for 'Risk'. This emphasizes the importance of evaluating risks in the areas of environment, social policy, good governance, and finance. Another term is SDG, which stands for Sustainable Development Goals. This refers to the 17 goals set by the United Nations to promote global sustainable development. The above classifications can help you find sustainable investment products.
Looking for sustainable investment products? There are several options to choose from on the market, let's take a look!
One option is to invest in sustainable stocks, choosing companies that are not only focused on profits, but are also actively pursuing environmentally friendly practices and reducing their own carbon footprint. Companies often receive a certain ESG rating, which you can easily find online or in your broker. For example, a company dedicated to producing solar energy panels or a company committed to reducing their own plastic waste through recycling. Read more about how to invest in the stock market here.
A second option is to invest in sustainable ETFs (Exchange-Traded Funds), which are investment funds that track a specific index made up of companies with a widely known strong ESG performance. These allow investment with a single product in a diversified portfolio of companies classified as ‘sustainable’. You can usually immediately see from the name of the ETF whether it is focused on sustainability (e.g. by the abbreviations ESG, SRI).
In addition to equities and ETFs, there are other sustainable investment products, such as European green bonds, through which you buy EU government debt, in this case earmarked for environmental climate projects. They are seen as a green financing instrument contributing to more sustainable economic growth. In terms of yield, it is a fixed rate product and has therefore benefited in recent months from the rise in interest rates, an eventuality that has increased the attractiveness and popularity of this type of product among the investment community.
The same is true of the Spanish Treasury's green bonds, medium-term government debt securities, which reached a peak yield of up to 4.5% in October 2023.
It is not only public institutions that use this method to finance sustainable projects; some IBEX 35 companies, such as Iberdrola and Telefónica, have also joined this trend and offer green corporate bonds, with the aim of providing funds for projects included in their ecological transition strategies. Specifically, these two companies issued green debt worth 1 billion euros each in 2023.
To avoid greenwashing, the European Commission has published a regulation on green bonds, requiring issuers to be accountable and to demonstrate that they finance legitimate green projects.
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