This article was originally posted in German on the Leeway blog.
Emma: You are co-founder and CPO at Sagefund. What does Sagefund offer its users?
Sana: Sagefund offers sustainable digital asset management. We want users to plan their long-term financial goals with us and recommend sustainable financial products according to their preferences and needs. Initially, our portfolio will follow a rather risk-averse strategy, which is particularly suitable for beginners who want to remain flexible. Above all, however, we have been very careful to only include the most sustainable ETFs.
Emma: Nowadays, there is a general awareness of sustainability in most parts of society. We buy organic products, try to save electricity and water, recycle and do much more. Do you think consumers are already making the connection to sustainable investment?
Sana: I think you always have to see your actions in relation to their impact. If you shower 2 minutes less each day, it won’t make much of a difference. You should choose carefully where you want to invest your emotional and mental energy. Nordea Bank has calculated that the impact of sustainable investment can be 27 times higher than sustainably optimized consumption patterns. People realize that their decisions matter. But there is a lack of knowledge about the strategies that actually have an impact.
“You should choose carefully where you want to invest your emotional and mental energy.”
Emma: What are the greatest opportunities of sustainable investment?
Sana: There are two major advantages for investors. The first one, of course, is a clear conscience. You know that you are not part of the problem. Your investment is like a vote. You invest and speak up for sustainable business models. The second benefit is the return. Sustainable companies will perform better in the long run. In these companies, people think about issues that will be important in 10 to 20 years, which ultimately affects the effectiveness of the company.
Emma: In which sustainable financial products do you invest?
Sana: I like to use ETFs because they are cheap, convenient and diversified. I prefer to invest in the SRI (socially responsible investing) ETF from MSCI. There is a “best-in-class” approach where only the most sustainable 20% of the companies in their respective industry are selected. In addition, companies from industries that are classified as unethical are being excluded. These include, among others, tobacco or weapon production, those that generate income from the extraction of coal and oil, or that do not comply with the principles of the United Nations Global Compact (UNGC).
If you compare the MSCI Europe SRI with the regular MSCI Europe, there is a huge improvement in the sustainability rating. The reason is that 74 % of companies are excluded because they are not operating sustainably enough. Other funds screen far less precisely. Many ESG-based funds, for instance, only exclude companies from unethical sectors, which is not enough to increase sustainability in a substantial way.
“Your investment is like a vote. You invest and speak up for sustainable business models.”
Emma: Which is an important reason for us to say that it is better to invest in individual stocks. Many ETFs utilize insufficient criteria and include companies that are not really sustainable.
Sana: Certainly! I wouldn’t demonize all ETFs – as I said, there are big differences. But you should definitely take a second look at both, the selection criteria as well as the individual companies in the ETF.
Emma: This is why it is so important that companies like Sagefund help the investor by making a preselection. At Leeway, we follow a similar goal – only with regard to individual shares. You once mentioned that you also invest in sustainable stocks. How do you go about the selection?
Sana: For the ESG perspective, I use various free databases with scoring systems, where I trust the evaluation methods. I also look at sustainability reports to get a feeling whether the company is only doing greenwashing. For the performance perspective, I use platforms like Simply Wall St or Morningstar.
Emma: Of course, one should consider both aspects and not neglect the financial performance of a company. That is why we combine both aspects and will soon present all the information on one platform.
Sana: That’s very convenient. At the moment I am still bothered by the fact that I have to gather all the information from six or seven different sources.
“Information must become more accessible so that companies are forced to act sustainably and become more transparent.”
Emma: Which is what makes it so difficult. Information must become more accessible so that companies are forced to act sustainably and become more transparent. A number of fintechs are now driving the market in this direction.
Sana: Yes, that’s why I like Leeway’s approach. Many data providers are targeting large companies and it costs a few thousand euros annually to access their data and analyses.
Emma: Which trends and developments do you predict for sustainable investment, especially with regard to Fintechs?
Sana: A wider selection of different ETFs, lower costs and stricter standardization: There is a wider range of various ETFs than ever before, including, for example, green real estate funds and much more. I hope that sustainably oriented investors will be less at a disadvantage and that costs will decrease – because they are still very high in comparison to regular ETFs. Above all, standardization must become stricter. There is still a lot of room for greenwashing. It would be cool if there was some kind of label that investors could trust.
Emma: That’s a very critical aspect. In order to provide sustainability analyses at an affordable price point, parts of the evaluation have to be automated. It’s still quite a challenge. Coherent standards would advance automation and also offer less space for greenwashing.
“In order to provide sustainability analyses at an affordable price point, parts of the evaluation have to be automated. That’s still quite a challenge. Coherent standards would advance automation and also offer less space for greenwashing”