What are the best practices for investing in sustainable finance?
Every year, Global Investor Week aims to improve savers’ financial literacy and provide them with the tools they need to make informed investment decisions across various asset classes.
While “green” investing is appealing, many questions remain. Which investments should you choose? Which certifications can you trust to ensure safe investing? How can you assess the risk of sustainable investments? Pascale Gloser, President of CNCEF PATRIMOINE, a professional association of wealth management advisors, answers these questions.
Which investments should you choose?
The range of sustainable investment options has expanded significantly in recent years, but it often remains difficult for savers to understand.
• Beware of greenwashing: Be wary of financial products that exaggerate their “sustainable” profile or include shares of fossil fuel extraction companies in funds labeled as “green.”
• Key Information: The exact composition of a fund, its risk indicator, and its performance scenarios are details that the Wealth Management Advisor (CGP) must gather to align them with your preferences regarding sustainable investing and risk. The CGP must then provide you with a Key Information Document (KID) for each fund.
• Licenses and Registers: All financial sector professionals must be licensed by the ACPR or the AMF and be registered with ORIAS. Be vigilant and watch out for identity theft.
Which labels can you trust to invest safely?
One in two French people say they consider environmental and social impacts to be important in their investment decisions, but they’re not sure which types of products to choose. French investors can rely on three labels to make their choices:
• The SRI (Socially Responsible Investment)Label: Created and supported by the Ministry of Finance, this label guarantees that the fund has developed a methodology for evaluating financial actors based on ESG (Environmental, Social, and Governance) criteria and that it incorporates these criteria into its investment policy.
• The GreenFin Label: Created by the Ministry of the Environment, it guarantees the “green” quality of financial investments through transparent and sustainable practices. It focuses on financing the energy and ecological transition and excludes funds that invest in companies operating in the nuclear and fossil fuel sectors.
• The Finansol Label: This label applies exclusively to solidarity-based savings products—that is, those that finance activities aimed at combating social exclusion, promoting social cohesion, or supporting sustainable development (housing, employment, the environment, international solidarity, etc.).
A financial advisor can help you identify your needs before investing by using a tailored questionnaire.
How can you assess the risk of sustainable or responsible investments?
A sustainable investment may carry the same level of risk as a “traditional” investment. As with any investment, there are some key questions to ask first:
• Investment horizon: What is your investment horizon—short-, medium-, or long-term? Will you need this money before the investment you choose matures?
• Maximum risk: What is the maximum risk you’re willing to take? How much are you willing to lose in the worst-case scenario? Are you comfortable with the value of your investment fluctuating up or down?
Note: Risk is often linked to return. The more risk you take (such as the risk of capital loss with stocks, for example), the higher your return may be. Conversely, a guaranteed investment (such as bonds or euro-denominated funds) will offer you a lower return.
