More than a trend: Sustainable financial products

March 2020 – The market for sustainable financial products is in the fast lane. But what exactly does sustainability mean? Does it also exist on the Blockchain? And how can I, as an investor, tell whether it really is a sustainable offer or whether the issuer has not just put a green coat on it?

This is where the EU taxonomy regulation will help us in future. It serves as a classification system that determines which investments are considered sustainable in the EU. The regulation is part of the “Green Deal” of the European Commission. Europe is not only striving for climate neutrality by 2050, but also wants to establish itself as a global lead market for sustainable investment products.

What does that look like in concrete terms? Only issuers who can prove that their investment contributes to at least one of the six environmental goals shown in the chart are allowed to advertise with the sustainability aspect.

“Greenwashing”, i.e. just pretending to act sustainably, will no longer be possible in the future. This will lead to more transparency for investors, because they will be able to orient themselves to EU standards or certain labels. This will ensure better comparability of sustainable offers.

Sustainability also includes ethics

In fact, the EU taxonomy is mainly about ecologically sustainable aspects, so calles „green finances“. But sustainability today goes far beyond environmental protection. The extent of this is shown by the ESG standards already established in the financial sector:

The letters stand for environmental, social and governance. Is production under fair conditions? Are the staff treated with respect? Aspects that are also summarized under Corporate Social Responsibility and become mandatory. Listed companies within the EU with more than 500 employees must report the sustainability of their sales, investments and expenditures.

Deutsche Börse has also reacted to this and introduced the DAX 50 ESG Index on 4 March 2020. In addition to market value and turnover, it also takes ESG aspects into account. By definition, companies that produce or trade in controversial weapons, power station coal and nuclear energy or produce tobacco are therefore already out by definition.

How much sustainability do investors actually want?

With so many rules and regulations, it could look like EU itself is doing a little greenwashing or at least has to finance the extensive climate protection targets somehow. But a glance at the figures shows that sustainable finance is catching on. Between 2016 and 2018, the sum of sustainable investments worldwide rose by 34% to 30.7 trillion US dollars (source: Global Sustainable Investment Alliance (GSIA)) .

Europe is doing quite well within those figures: Over the same period, total assets committed to sustainable investment strategies have increased here by 11 percent to 12.3 trillion euros (14.1 trillion dollars).

Even the quite environmentally conscious Germans are taking part: According to a recent forsa study for the Santander Consumer Bank, almost half of the Germans (47 percent) want to select only investments that do not harm the climate or the environment.

And what about the professionals? For asset managers and institutional investors it will become obligatory anyway to take sustainability factors into account in their investment decisions. According to DWS, over a third of them have already invested part of their assets in sustainable investments. And even financial investment advisors will have to find out their investors’ sustainability preferences and act accordingly in the future.

How green can financial instruments be on the blockchain?

The blockchain and especially the crypto-currencies are notorious as energy guzzlers. But facts, figures and trends in this regard are a different matter. So if you have been wondering why neoFIN Hamburg is taking on the topic of sustainable finance, even though it operates in the blockchain environment, we can say:

We are doing this BECAUSE we operate in the blockchain environment. Because we know that with our financial instrument of digital securities, we provide liquidity to companies whose investment products comply with the regulations of the EU Taxonomy Regulation. And not just in one of the six points, but in several. Now, of course, you want to know what these can be. Sorry: Unfortunately, we have to ask you to be patient.