Sustainable Investments & Sustainable Funds
This article aims to describe the difference between Sustainable Investments & Sustainable Funds. It will also explain how to include this type of investment in your strategy.
What are sustainable funds?
One of the most common types of sustainable investments is mutual funds. Sustainable investment funds have a sustainability policy that explains the funds' view on sustainability. It explains the funds intention in terms of what sustainable companies to invest in and what it does not invest in.
In the first step, a classification of the fund is made under either Article 6, 8, or 9.
Article 6 - Integrates sustainability risks:
The fund manager provides information on how sustainability risks are integrated and are expected to affect the fund's return or decides not to provide this information. If deciding on the latter, he needs to explain why. This category is also referred to as "grey".
Article 8 - Promotes environmental or social characteristics:
When a fund promotes environmental or social characteristics, requirements are set for the information to be provided in the information brochure. The information shall include information on how the environmental or social characteristics are achieved, if an index is chosen as the reference value, information on this index 'compatibility with these characteristics shall be provided and indicate where the method used to calculate the index is available. These funds are usually called light green funds and constitute a broad category.
Article 9 - Sustainable investment is the goal:
With regard to funds that have sustainable investment as a goal, additional requirements are set, e.g. when it comes to choosing an index. What is to be interpreted as having sustainable investment as a goal and what limit values apply in that case is difficult to ascertain with the information that is currently available. It may probably contain requirements for a minimum share of the fund to live up to the requirements according to the EU's Taxonomy or otherwise have measurable impact strategies. This category is sometimes called "dark green".
AuAg's funds are classified by Article 8 of the Disclosure Regulation, which means that the funds promote environmental or social characteristics.
What are considered sustainable investments?
Sustainable investments are about investing to create good long-term returns while contributing to a more sustainable future. This type of investment mainly focuses on improving the environment, social aspects, and corporate governance. A driving force behind this type of investment is several global goals that have been set, e.g. the UN’s 17 global sustainability goals.
The definition of sustainable investments has long been unclear, so the EU has developed a new regulation (SFDR) to classify this type of investment. This will enable investors to understand and compare different types of sustainable investment alternatives easily.
AuAg Funds and sustainability
- AuAg Funds actively work to promote change with their funds. The approach does not only involve investing in sustainable companies but also investing in companies where they can make an impact. Sustainability is an important area, and it is essential when working with companies that have a significant impact on the environment but at the same time play a vital role in the green transformation. AuAg Funds focus on sustainable and responsible investments and screen companies using external ESG data from Sustainalytics, the world-leading ESG data provider. Read more about AuAg Fonder’s environmentally friendly investing and work with sustainability here.
- AuAg invests in green technology through the fund AuAg Precious Green. The fund challenges the traditional 60/40 portfolio and replaces the equity component with companies in green tech, and invests the interest component in physical precious metals with a focus on gold. In the green technology strategy, the fund invests in companies in green power, green energy, green efficiency and green raw materials.
- Investments in green technology funds provide exposure to the transition from fossil fuels to alternative green energy sources, which is necessary to achieve set climate goals. By investing in a green technology fund such as AuAg Precious Green, a unique exposure is given to this change. At the same time, the equity risk is balanced with gold, which has a low correlation to the broad stock market and benefits in times of monetary inflation
Benefits of investing in sustainable energy
By investing in sustainable energy, you enable companies active in the green transformation or whose activities contribute to achieving set sustainability goals. AuAg Funds focus on green investing by allocating capital to companies operating in areas such as green power and sustainable energy and the commodities needed for green transformation. Investing in environmentally friendly funds in 2022 has been a strong trend.
How to invest in sustainable investment funds?
As a result of EU’s new taxonomy, it is becoming easier for investors to find sustainable investment funds. All funds need to be classified as article 6, 8, or 9, as described above, and by understanding the difference between these classes, an investor can find a fund that fulfils their requirements.
Fund platforms offer a range of sustainable investment funds, also known as ESG investment funds, displaying the sustainability rating according to the EU taxonomy and other rating institutes such as Morningstar. There are also exchange-traded sustainable investment funds (ETFs) with an explicit sustainability focus, typically tracking an index of sustainable investments.
Here is a short guide that explains how to invest in sustainable investment funds:
- Go to the fund list on your fund platform.
- Use the filter to find sustainable funds.
- If there is no filter, you can go into the specific fund and read through the fund documentation to see how the fund is classified with regards to SFDR.