The ecologic crisis of our Planet is foreseeable. Making money with it, or even better making money by preventing the disaster, will sell.
This thesis shall evaluate the effectiveness of environmentally friendly investments and provide an outlook on future perspectives.
The topic has become very popular due to a general reorientation to ethical values and particularly, because of the questionable ethical behavior of many financial players in the current world economic crisis.
The indicators reveal a strong and continuous growth in the market of environmentally friendly investments. For this reason, the financial sector now copes with the topic more intensively. Whether this leads to improvements for investors through stronger performance or for managers of sustainable projects due to better financial conditions depends on the developments of standardization and the quality assessment processes.
This work starts with the clearing of uncertainties related to the core terminology and presents the numerous investment possibilities with their corresponding ecological impact.
The main challenge the environmentally friendly investment market is facing, is the need for more transparency; in the assessment criteria and their weighting, in methods, and in the application of funds. Subsequently, the credibility of these investments has to be increased. These statements are confirmed by a survey (cf. chapter 6). The survey reveals furthermore that financial consultants regard the issue as relevant for their job, but lack information to promote these investments.
There is an urgent need to implement new ideas in order to lower the risks for the environment and to satisfy the financial market’s need at the same time. Therefore, concepts are presented that try to meet these demands. The focus lies on a concept as holistic as a Life Cycle Assessment and as measurable as the eMergy coefficient.
Table of Contents
1. Introduction
2. Basic facts about environmentally friendly investments
2.1 Market overview
2.2 Definitions of key words
2.3 Principles of Responsible Investment and leading Organizations
3. Investment forms and their ecological effectiveness
3.1 Three categories to rank investment forms by their ecologic effectiveness
3.2 Closer analysis of ecological effectiveness of each investment form
3.2.1 Bank deposit
3.2.2 Credit cards
3.2.3 Bonds
3.2.3.1 Loans
3.2.3.2 Shares
3.2.4 Investment funds
3.2.5 Hedge Funds
3.2.6 Life and health insurances and provisions of retirement
4. Investment strategies with sustainable focus
4.1 Common strategies in the implementation of sustainability into the asset management
4.2 Indices
4.2.1 Dow Jones Sustainability Index
4.2.2 FTSE 4 Good Index
5. The transparency challenge
5.1 Quality, objectiveness and expressiveness of information
5.2 Costs for transparency
6. Survey among financial service providers
6.1 Target, Methodology
6.2 Participants and their background
6.3 Presentation of results
6.4 Survey Conclusions
7. Calculating an indicator to measure environmental impact
7.1 Introduction of the Life Cycle Impact Assessment
7.1.1 The implementation of the LCA and the ISO 14040 on the basis of an example of the automotive industry
7.2 Critical discus on the Life Cycle Impact Assessment
7.3 Integration of ecological impact measurement into financial decisions and daily business life
8. Conclusion
9. Appendix index
Research Objectives and Key Topics
This thesis evaluates the effectiveness of environmentally friendly investments (EFI) and explores their future potential within the financial sector, specifically addressing the critical need for transparency and standardized measurement tools to bridge the gap between investor demand and available information.
- Analysis of existing investment strategies and their ecological impact.
- Evaluation of transparency challenges and the role of information quality.
- Empirical survey on financial service providers' knowledge and attitudes.
- Investigation of the Life Cycle Assessment (LCA) as a potential measurement indicator.
- Discussion of innovative concepts like the 'eMergy' coefficient and 'Energy Points' for standardizing environmental impact measurement.
Excerpt from the Book
3.1 Three categories to rank investment forms by their ecologic effectiveness
According to Stephan Rotthaus, banker, economic journalist and co-founder of the eco fund NRW and Öko-Test magazine as well as head of a PR agency, there are three categories to differentiate for financial communication. The first category with the highest ecological effectiveness is marked with three trees down to the lowest category with only one tree.
Initial public offering
Venture capital investments
Direct investment
Donations
For these investments, money flows completely to the companies or projects after subtraction of administrative costs.
Environmentally friendly operating banks
Primary offering of fixed-income security
Banks can offer better credit conditions for companies certified as operating environmentally friendly or even may facilitate projects through innovative financial instruments which would have no chance at conventional banks.
Summary of Chapters
1. Introduction: Outlines the scope of socially responsible investment (SRI) and questions whether current practices provide real ecological value or are merely marketing instruments.
2. Basic facts about environmentally friendly investments: Defines core terminology and identifies the leading global organizations and principles governing responsible investment.
3. Investment forms and their ecological effectiveness: categorizes various financial instruments based on their potential to drive positive ecological change, ranging from direct investments to indirect participation.
4. Investment strategies with sustainable focus: Examines common strategies like blacklisting and best-in-class approaches, while evaluating specific sustainability indices like the DJSI and FTSE 4 Good.
5. The transparency challenge: Addresses the lack of standardized definitions and the resulting administrative costs that hinder the growth and credibility of sustainable investments.
6. Survey among financial service providers: Details an empirical survey conducted among financial consultants to understand their knowledge gaps, skepticism, and perceptions of EFI.
7. Calculating an indicator to measure environmental impact: Introduces the Life Cycle Assessment (LCA) as a potential standardized metric for ecological impact and suggests future innovations like 'Energy Points'.
8. Conclusion: Synthesizes findings on the market growth of EFI and emphasizes the necessity for standardized measurement systems to improve trust and long-term sustainability.
9. Appendix index: Lists supporting documentation including survey questionnaires, principles for responsible investment, and detailed sample calculations.
Keywords
Socially Responsible Investment (SRI), Environmentally Friendly Investments (EFI), Sustainability, Life Cycle Assessment (LCA), Transparency, Financial Markets, Ecological Impact, ESG Factors, Best-in-class, Index Construction, Financial Consultancy, Energy Points, Corporate Responsibility, Standardized Measurement, Sustainable Development.
Frequently Asked Questions
What is the core focus of this thesis?
This work evaluates the effectiveness of environmentally friendly investments (EFI) and explores whether current industry standards lead to meaningful environmental improvements or function primarily as marketing tools.
What are the central themes discussed in this document?
The document covers market trends in sustainable finance, the impact of current investment strategies, the persistent problem of low transparency, and the necessity for robust, standardized measurement tools for ecological performance.
What is the primary research goal?
The primary goal is to determine how transparency and credibility in the EFI market can be improved to satisfy investor demand and drive authentic sustainable development within the financial sector.
Which methodology was used to conduct the study?
The research relies on an interdisciplinary approach, combining a comprehensive review of existing literature and market reports with an empirical survey of financial consultants to capture real-world market sentiment and knowledge levels.
What does the main body of the work cover?
It covers the classification of investment forms by ecological effectiveness, analysis of investment strategies (such as blacklist vs. best-in-class), an in-depth look at transparency challenges, and potential new metrics like the Life Cycle Assessment.
Which keywords best characterize this research?
The research is characterized by terms like SRI, EFI, sustainability, transparency, Life Cycle Assessment, ESG factors, and standardized measurement.
How is the transparency issue addressed?
The author argues that transparency is currently hindered by the lack of standardized definitions and diverse rating methodologies, suggesting that a unified, independent quality seal and rigorous scientific metrics are essential for improvement.
What specific innovation does the author suggest for ecological impact measurement?
The author advocates for the implementation of an energy-based measurement system, specifically utilizing 'Energy Points' (EP) to calculate the energetic cost of every stage in a product's life cycle, mirroring monetary accounting systems.
Why are credit cards discussed in the context of investments?
The author includes credit cards to demonstrate the strong private investor demand for sustainable financial products and to illustrate how financial institutions are responding with innovative, if modest, ecological engagement initiatives.
What is the author's stance on current sustainability indices like the DJSI?
While acknowledging their success as benchmarks, the author provides a critical assessment, highlighting that they often suffer from subjective data sources, unbalanced weighting of sustainability dimensions, and a tendency to favor only large-cap companies.
- Quote paper
- Eva-Maria Betz (Author), 2009, Socially Responsible Investment, Munich, GRIN Verlag, https://www.grin.com/document/138446
