2015-11-08

Ethical Investments

A few days ago, I heard a talk about ethical investments. It was held by the regional director of the GLS Bank's subsidiary in Frankfurt am Main, Germany. The GLS Bank, a registered cooperative society, is one of the ecologically and ethically sound banks operating in Germany.

Despite the fact that he was sticking on the products, the organizational ecosystem, and the self-image of his bank, he mentioned also their competitors.

Two outstanding principles of the GLS Bank are transparency and prohibition of abstract and speculative bargains. Transparency means for them, e.g., that every loan the bank grants nonprofit organizations, enterprises, or entrepreneurs has to be mentioned in their members and customers magazine. The prohibition of abstract and speculative transactions simply means that they themselves as well as their customers are not allowed to trade derivatives, e.g., certificates, warrants, options, and futures with their security accounts operated by the GLS Bank.

Although they offer security accounts to their customers, from their point of view, investments in listed securities (stocks, funds, bonds, etc.) do not have an additional positive effect on sustainable development, because you simply buy a share that already exists and so your money is not transferred to the issuers but to someone who sold the share to you. An exception are initial public offerings (IPOs) or capital raisings, where new shares are put into the market to raise additional money, which then may be used to develop products and services that expedite sustainable development.

An impact similar to IPOs of listed securities have investments in non-listed corporate bonds or bearer bonds, e.g., to finance wind turbine parks or hydroelectric facilities, or investments in cooperatives, e.g., organic farmland cooperatives. However, because those securities are non-listed, their negotiability is usually restricted: in case that your earnings do not develop as you expect, you simply need your money back, or bankruptcy of the corporation or cooperative looms ahead, you cannot simply sell your share at a securities exchange to get rid of it.

With both, listed and non-listed securities, the risk that you loose all of your invested money is regularly high or even very high. Hence, for non-experts, expert advice prior to any investments in securities is strictly necessary.

In contrast to these risky investments, the main business of the GLS Bank is to lend money to nonprofit organizations, enterprises, and entrepreneurs, but also to private persons. Those loans are funded by the savings deposits of the members and customers of the bank. Due to the deposit insurance, which is required by EU regulations, the risk is usually low but also the interest rates are low.

From the bank's point of view, lending money has the highest effect on sustainable development, because the money is directly invested by debtors, e.g., to develop new organic seeds, to buy new equipment with less emissions, to insulate buildings, to equip buildings with photovoltaics or solarthermics, to renew wind turbine parks, to found independent schools or kindergartens, etc.
Actually, they do not grant loans to everyone: they apply a set of business rules to guarantee that the loans will have a positive effect on sustainable development.

In Germany, there operate four sustainable sound banks:
Most of them are organized in INAISE, the International Association of Investors in the Social Economy (http://www.inaise.org/), and in the Global Alliance for Banking on Values (http://www.gabv.org/).

Regarding fungible securities, there operate (to my knowledge) four rating agencies in Germany, which offer ratings, research documents, sustainability ratios as well as sustainability index compositions and methods. Unfortunately, their products are usually not publicly available, but they describe their methods in short on their websites:

If I caught your interest in ethical and ecological sustainable investments, feel free to checkout the websites of INAISE (http://www.inaise.org/?q=en/members-2015) and the Global Alliance of Banking on Values (http://www.gabv.org/our-banks) to inform yourself about suitable banks and their products available in your area .

However, there is a good chance that even your bank offers already some kind of a sustainable financial product (possibly they have it somewhere “under the counter”).
Just ask for it.

Legal Notice

The information of this blog post does not constitute an offer or solicitation to sell, or a recommendation to buy or sell financial instruments or banking services and does not release the recipient from exercising her or his own judgment in making any investment decision.

Rechtliche Hinweise

Die Angaben in diesem Blog-Post stellen weder ein Angebot oder eine Aufforderung zum Verkauf oder eine Empfehlung zum Kauf oder Verkauf von Finanzinstrumenten und Bankdienstleistungen dar und befreien die Leserin oder den Leser nicht davon, sich ihr oder sein eigenes Urteil in jedweder Anlageentscheidungen zu bilden.