What are sustainable investments and funds?
Sustainable investments focus on generating long-term positive returns while contributing to a more sustainable future. These types of investments are primarily concerned with improving environmental, social, and corporate governance (ESG) factors. A driving force behind such investments are various global goals that have been established, including the United Nations' 17 sustainable development goals.
One of the most common types of sustainable investments are sustainable funds. These funds can invest in a variety of assets, including stocks, bonds, and real estate, but they all aim to avoid investments in companies and industries with a negative impact on the environment and society, such as fossil fuels, weapons, or tobacco. Most of these funds have a sustainability policy that explains the fund's focus on sustainability, detailing what they intend to invest in as well as what they will avoid.
Types of sustainable funds
The definition of what constitutes a sustainable investment has long been unclear, so the EU has introduced a new regulation (SFDR) to classify these types of investments. This will make it easier for investors to understand and compare different sustainable investment options.
The EU’s taxonomy (SFDR) categorizes funds based on their sustainability objectives. Sustainable funds fall into three categories:
Article 9 – Dark green funds with sustainability as the goal: For funds explicitly targeting sustainable investments, there are additional obligations, including the choice of appropriate indices. Exactly what qualifies as a sustainable investment and the applicable thresholds are not entirely clear based on currently available information. Future requirements may include a minimum percentage of the fund’s assets that must meet EU taxonomy criteria or other quantifiable impact strategies. These funds are sometimes referred to as "dark green" funds.
Article 8 – Light green funds promoting sustainable and social attributes: If a fund aims to enhance eco-friendly or social qualities, there are specific requirements for the information that should be in the fund's prospectus. It should be clear how these environmental or social goals are met. If an index is used as a benchmark, information on its alignment with these attributes should also be included, along with where one can find the method of index calculation. These funds are often referred to as "light green" funds.
Article 6 – Gray funds integrating sustainability risks: The fund's manager can either outline how sustainability risks are incorporated into the decision-making process and how these risks are believed to impact the fund’s returns or choose not to provide this information. If the latter option is selected, an explanation for this choice must be given. These funds are termed as "gray."
Benefits of investing in sustainable funds
There are several advantages to investing in eco-friendly funds, some of which are listed below:
Contribute to a better world: By investing in eco-friendly funds, you contribute to capital funding for companies that are active in green transformation or that help achieve set sustainability goals.
Invest in a megatrend: Green funds invest in companies that are driving the transition to a green world. Investing in these funds exposes you to this trend. Like all investments, there are also risks involved in investing in eco-friendly funds. As an investor, you may lose part or all of your capital. More information about the risks for each fund can be found in the fund's factsheet.
How to invest in sustainable funds?
Thanks to the EU's new taxonomy, it has become easier for investors to find sustainable investment funds. All funds must be classified as Article 6, 8, or 9, as described above, and by understanding the differences between these classes, an investor can find a fund that meets their requirements.
Fund platforms often offer a range of sustainable investment funds, also known as ESG investment funds, which display sustainability ratings according to the EU's taxonomy and other rating agencies like Morningstar. There are also exchange-traded sustainable investment funds (ETFs) with a specific focus on sustainability, which usually track an index of sustainable investments.
Here's how you find sustainable funds on your fund platform:
Go to the fund list on your fund platform.
Use the filter to find sustainable funds.
If no filter is available, you can check the specific fund's documentation to see how the fund is classified with respect to SFDR.
Why invest in sustainable funds with AuAg Funds?
AuAg Funds promote sustainability across all their funds and are classified under Article 8 in SFDR: Sustainability is an important focus, especially when working with companies that have a significant environmental impact but also play a crucial role in the green transition. Read more about AuAg Funds' sustainability work.
AuAg invests in green technology through the AuAg Precious Green Fund: This fund challenges the traditional 60/40 portfolio, replacing the equity portion with companies in green tech and investing the fixed-income portion in gold-related holdings. Within green technology, the fund invests in companies in green power, green energy, green efficiency, and green commodities. Investments in green technology funds provide exposure to the transition from fossil fuels to alternative green energy sources, which is essential for achieving set climate goals. By investing in a green technology fund like AuAg Precious Green, you get unique exposure to this transition while balancing equity risk with gold, which has low correlation with the stock market and benefits in times of monetary inflation.
AuAg Funds invest in companies involved in green power and energy, as well as in the commodities required for this transition: Investments in eco-friendly funds in 2021 yielded good returns, and if you believe in the megatrend of "Transition to a Green World," it's likely that this long-term trend will continue in the coming years and decades.