Switzerland is one of the wealthiest countries. To manage the immense amount of wealth, we need to be wise and create a positive value.
After I finished my apprenticeship, I travelled for a few months around the globe and enjoyed my freedom. Getting to know many people from different countries, I often was confronted with the same statement: “Oh, you are Swiss – So you must be rich”. As I learned, it is a well-known cliche that Switzerland is not poor at all. And to be fair, the people I met were not wrong. Switzerland is leading the scoreboard with the highest wealth per adult compared to any other country. On average, it is a staggering amount of USD 598’400 (Shorrocks, et al., 2020). Of course, many of these treasures are locked behind pension funds; nevertheless, we cannot deny how fortunate our position is. However, with such a treasure comes great responsibility. As Robert Walser (1990) said: “Money rules the world”. This post will look at how your savings can make a difference in shaping the world into a better place.
Sustainable investing
Even with minimal amounts of money, you can start investing your savings into companies. This is nothing new. The first modern stock market opened up in 1611, located in Amsterdam (SoFi Learn, 2021). However, by investing in a company’s stock or bond, you support their activities by giving them money. With your investment, you help a company to grow and develop. How is it possible to help these companies that reflect your values of a more sustainable future? Here are three ways to do it (UBS AG, n.d.):
- Exclusion: First, let us look at companies that work against sustainable goals. Some examples are the Tabacco, weapon or nuclear power industry. We exclude these from our portfolios.
- Integration: Secondly, integrate companies into your portfolio that represent your values well. Some examples are firms that invest in renewable energies or have useful measures against corruption. We want to invest more assets into these kinds of cooperation.
- Impact: Finally, use your power as an investor to speak up for sustainable change in the companies invested. We give the company money and therefore have influence.
Of course, not many individuals have the resources and the knowledge to do it themselves. But many financial investors and banks help you with that goal. For example, there exist sustainable funds that work with the mentioned three criteria. Just open your internet search engine and search for Sustainable investing or speak to your local bank manager.
How to assess companies?
There are thousands of companies listed on the stock market. How is it possible to have a good overview of which companies act sustainably and which do not? One modern method is ESG-Rating (MSCI, n.d.):
- Environmental Factors: Climate Change, Natural Capital, Pollution & Waste and Environmental Opportunities.
- Social Factors: Human Capital, Product Liability, Stakeholder Opposition and Social Opportunities
- Governance Factors: Corporate Governance and Corporate Behavior
Specialised firms then make ratings for each of the mentioned criteria for all the publicly listed companies. This helps investors to assess which companies are acting sustainably without analysing each position individually. Nevertheless, there are some problems. Smaller companies might be working sustainably; however, they do not have the resources to fully report all the criteria. Another problem is that these criteria are still not standardised to thoroughly compare companies (Amel-Zadeh & Serafeim, 2018). Nevertheless, ESG is already much better than not being intentional about your investment at all.
Be aware of greenwashing.
Sustainability is fashionable and sounds fancy on every company advert. Nowadays, almost every bank offers some sort of sustainable product. However, there are massive differences between the products. Some funds are called sustainable simply because they exclude some sectors. This aspect is OK but noway good enough to be called sustainable (ROBECO, n.d.). Therefore, always check if the product covers all the elements of exclusion, integration and impact. Otherwise, find something better.
Join the movement
The more money is managed with a sustainable goal, the more significant its impact on the public listed companies will be. So far, very little money has been allocated sustainably by private investors (Paetzold & Busch, 2014). Nevertheless, the share has been growing in recent years. The volume of sustainably managed assets has increased year for year and will multiply even further soon (BlackRock, n.d.).
Today I ask you to reconsider your personal investment plan. So often, we are unintentional about where we put our money. But is that good stewardship? Is it not only fair if we can make demands on how to use our savings? Even if they are tiny, my personal assets should not be used to push tobacco products to make people more addicted or support companies profiting from child labour.
And maybe just pause here for a second and ask yourself. How would the world look if managers have to think about their decisions’ environmental and social consequences and not only how to make money? If you like that dream, join the movement.
We do not know what is going to happen.
To be fair, so far, there is not enough evidence that sustainable investing impacted companies. Too little money is invested in sustainable funds (Kölbel, et al., 2020). It reminds me of when a few students started going on the streets to protest for governmental change. First, they were ignored, and nothing happened. But once more and more came, politicians woke up and took action. The same things will happen with Wall Street once the force is big enough. So let’s go and tackle these managers.
References
Amel-Zadeh, A. & Serafeim, G., 2018. Why and How Investors Use ESG Information: Evidence from a Global Survey. Financial Analysts Journal, 74(3), pp. 87-103.
BlackRock, n.d. Sustainable investing. [Online]
Available at: https://www.blackrock.com/ch/individual/en/themes/sustainable-investing#sustainable-solutions
[Accessed 23 February 2021].
Kölbel, J. F., Heeb, F., Paetzold, F. & Busch, T., 2020. Can Sustainable Investing Save the World? Reviewing the Mechanisms of Investor Impact. Organization & Environment, 33(4), pp. 554-574.
MSCI,
2020. YouTube: ESG ratings explained: What are MSCI ESG Ratings?. [Online]
Available at: https://www.youtube.com/watch?v=79rZm7FCkOU
[Accessed 28 February 2021].
MSCI, n.d. ESG Ratings Key Issue Framework. [Online]
Available at: https://www.msci.com/our-solutions/esg-investing/esg-ratings/esg-ratings-key-issue-framework
[Accessed 28 Februaray 2021].
Paetzold, F. & Busch, T., 2014. Unleashing the Powerful Few: Sustainable Investing Behaviour of Wealthy Private Investors. Organization & Environment, 27(4), p. 347–367.
ROBECO, n.d. Greenwashing. [Online]
Available at: https://www.robeco.com/de/unsere-expertise/sustainable-investing/glossary/greenwashing.html
[Accessed 23 February 2021].
Shorrocks, A., Davies, J. & Lluberas, R., 2020. Global wealth report 2020, Zürich: Credit Suisse Research Institute.
SoFi
Learn, 2021. A Brief History of the Stock Market. [Online]
Available at: https://www.sofi.com/learn/content/history-of-the-stock-market/?__cf_chl_jschl_tk__=f3b9cbe29b856fda63c6902a47f99669f2a9f36c-1614085359-0-AaXCF8JhOM9Sga41Z32MrNDEhp3t7qNGCB2Y7rYi_dey-SpRaBjGvcGA4eSlaJzOZ2nLK6mIBz5FpGRaA84moswX56UibAQOUxclmXlRegbYIeB8sE6W3
[Accessed 23 February 2021].
UBS AG, n.d. All about sustainable investing. [Online]
Available at: https://www.ubs.com/microsites/sustainable-investing/en/education.html
[Accessed 23 February 2021].
Walser, R., 1990. Masquerade and Other Stories. 1st ed. Baltimore: Johns Hopkins University Press.