What is sustainable investing?

Ever more people are asking questions about sustainability, and the topic is also receiving more media attention. Animal welfare, fossil fuels, labour rights, and meat consumption, are just a few of the sustainability topics that are growing in importance. But, what exactly is sustainability? 

Sustainability can be defined in two ways.
In a narrow sense, the term refers to the property of “long-term existence in the right way”, also described as “permanence” and “consistency”. 
On the other hand, sustainability can be considered broadly, which is also the way the concept is understood in today’s society. A broad approach does not provide an unambiguous definition. Sustainability comprises several elements, each with their individual meaning. Moreover, it is dynamic in that its interpretation follows developments in various domains and the social debate. 

Forum Ethibel uses the concept of sustainability in a broad sense. ESG factors ( environment – social – good governance) are the leitmotiv of our operations. 

In 2023, we created a series on sustainable investing and impact investing in collaboration with Canal Z and major financial players in Belgium. Feel free to watch the episodes (available in French and Dutch) if you want to know more about these topics.

The importance of sustainability is increasing, and sustainable investment is also on the rise. More and more investors – both private and institutional – want to know whether their capital is used for sustainable purposes. Increasingly, they attach importance to the sustainable nature of a financial product – both in savings and investment products – as well as of the asset manager itself. Financial players have no choice but to respond by developing sustainable products on the one hand and integrating sustainability into their operations and policies on the other.

Sustainable investments do not only take into account financial aspects, but also look at extra-financial elements. Sustainable products are products that use explicit, systematic and balanced social criteria when selecting the values in which they will invest (MIRA, 2018).

Extra-financial factors can be integrated in various ways. There are currently seven sustainability strategies that regularly recur: seven ways of making sustainable investments. These strategies are in line with the definitions of sustainable investment, defined by Eurosif (European Sustainable Investment Forum) and GSIA (Global Sustainable Investment Alliance). Febelfin – the representative of the Belgian financial sector – also refers to these definitions when they talk about sustainable investments. 

Sustainable products increasingly take into account multiple sustainability strategies. For example, many investment products apply the first four approaches (positive & negative) in their sustainability policy. There is also a critical note, though. A product often comes across as very sustainable when all the boxes are ‘ticked’ and it refers to the implementation of the sustainability strategies. However, this is not always true, as the depth of each strategy can vary greatly. 
We illustrate this with the examples below: 

How a sustainability strategy is applied, the extent to which a subject is considered essential, and the definition of sustainability used, make sustainable investing complex. 

With increasing attention to climate issues, topics such as fossil fuels and high greenhouse gas emissions have been the subject of much debate. There are many different views on the extent to which companies involved in these activities can be integrated into a sustainable financial product. While some players opt for total exclusion, others choose to integrate them. The vision on the transition to renewable energy and the application of engagement have roles to play in this. Some believe that it is precisely those companies that have the means to research renewable energy and that they should continue to receive investments. Besides, more and more people believe in supporting companies, in their transition to sustainability, through active ownership. 

Although some themes are always a subject of discussion, there are clear lines to be drawn in certain areas. In general, we can say that companies involved in arms or tobacco production, pornography or gambling, are often entirely or partially excluded from sustainable investment products.

There is also no doubt about controversial weapons (anti-personnel mines, cluster bombs, etc.). These types of weapons are excluded by Belgian law. Therefore, actively managed investment products must avoid any involvement in them. 

Just as sustainability is given a personal touch, the same applies to sustainable investments. After all, sustainable investment starts with defining one’s norms and values. What do you think is essential or important to you? As with financial profiling – checking whether someone wants to invest defensively or offensively and what the return expectations are – a sustainability exercise must also be carried out. Ideally, sustainable investments should reflect the emphases that a person places in their definition of sustainability and their views on society. 

It became clear that the mapping of the sustainable nature of an investment product is complicated because of the different definitions and various applications of sustainability strategies. Besides, the increasing demand for sustainable investment products means that sustainability is often used as a marketing strategy. This entails the danger of greenwashing, i.e. making products appear greener than they are. 

To counter all of the above, more attention is being paid to transparency. In the meantime, transparency is central to the whole story of sustainable investment. Customers should be able to know what investments are involved in a product. It is essential to read the prospectus and commercial documents attentively and ask additional questions to the provider.

In addition, it is necessary to check whether products carry labels and, if they do, what they exactly mean. There are different labels, each with their own content and focus. For example, Europe is currently working on an eco-label, which focuses on a positive impact on the climate. Febelfin has developed a sustainability label in which all ESG factors (environment, social, good governance) are integrated. Labelling financial products contributes to transparency and provides some overview of the wide range of sustainable investment products on offer. 

As mentioned above, in the first instance it is essential to be well-informed about what sustainable investments are on offer and what the specifications are for each product.

You can find more information on sustainable investments in Belgium in the ERSIS study by Forum Ethibel. This annual report offers concrete figures and highlights several themes about sustainability in the financial world. Consult the reports here.