In 2021, the EU Commission and Parliament opened the door to green financial transformation for investors. What can investors expect who are supposed to save the world with their euros – especially since it is not always possible to distinguish between “green sheep” and “black sheep”?
Thanks to the regulatory measures taken by the EU Commission and Parliament relating to their sustainable finance program , German investors have been experiencing a flood of so-called green or sustainable investment opportunities for several months – after years of green abstinence from German funds and banks. Today, even before the Tagesschau in the ARD, it is advertised to save the world with green money. And more and more shopping streets are emblazoned with advertisements in which banks and savings banks praise their investments that save the climate or even the world. And the legislature is helping: Financial advisors will soon be forced by law to smuggle customers through checklists with which they can be put to the test as to whether and how they want to save the world with their investment euros.
The good news for all green investors is that they have never faced such a wide range of investments. But grotesquely, more and more investors are becoming confused due to the variety, complexity, difference and novelty of green investments through advertising, pseudo-information, short-winded advice recommendations and incomprehensible product sheets. The problem here is that investors are mostly on their own when it comes to choosing the investments that are right for them. Because: Financial distributors are trimmed for sales and commissions, so they have to turn green investments into the new bestseller. Therefore, there is often not much time for advice, especially since it can be time-consuming and ambiguous for advisors in the case of green products. Another problem: From an academic point of view, green investments usually have high information asymmetries,
Knowledge asymmetry weighs more heavily than information deficits
Two main problems often arise when making green investment decisions:
On the one hand, many average green-affine investors who are only familiar with fixed-interest savings first have to understand financial products such as ETFs, investment funds, crowd investing, etc. This has nothing to do with green content, but with the necessary financial education, i.e. the financial basics.
If such knowledge is already available, then the question about your own sustainability priorities follows:
- Do you want to devote your euros to saving the climate, for example, or maybe even several sustainability goals?
- So which are the most important?
- Are the objectives self-contradictory?
- With which fund or ETF can you find the greatest correspondence with your own sustainability wishes?
- How tolerant are you of deviations from your own sustainability model and fund content?
- Where do you get the relevant information from?
- Do you understand what is meant by CO 2 backpack and impact?
Anyone who deals with green investments will be faced with these and other questions and will quickly realize that it takes a lot of time and thought to find their own answers, and that in the end the impression can remain that there is a difference between one’s own sustainability claim and the content of an ETF or funds, there are still considerable differences and whether one is willing to bear them.
Black sheep also graze in the green plant biotope…
There is now a wide range of green investments – in addition to sustainability funds and ETFs, more and more green and social bonds, profit participation rights, subordinated loans, etc.. A number of bonds come from energy producers – for most private investors, this is certainly the epitome of green investments. In addition, such investments often offer “dream interest rates” for today’s time, such as 5 percent and more for a five-year investment period. If you take a closer look behind it, you will find that there is almost no reliable security, the issuer of such a bond is often stuck in confusing investment structures and technical or legal risks are hidden that an uninformed private investor can hardly understand. Corporate collapses such as those of Prokon AG or German Pellets have also shown that
This also applies to many so-called illiquid assets and if you don’t have a decent wealth cushion with which you can also absorb a loss, these investments should be treated with caution.
… and sometimes even though they are green on the outside
But what has occupied the green investment world much more for months since the greenwashing suspicion against the Deutsche Bank subsidiary DWS is the dichotomy between a green appearance and being green in the area of investment funds. It is generally about the suspicion that some providers or producers raise false hopes or provide incomplete information about the true green characteristics of the system. In addition to these misconduct, which come from the financial market, green investments also harbor comparable dangers from politics. We are currently experiencing a controversy about nuclear energy, which the EU Commission is supposed to classify as sustainable. It is possible that the impending decision of the commission will put some Germans off interest in investing green.