ESG Products: a sustainable and profitable trend

Sustainable finance refers to an investment approach that integrates environmental, social, and governance (ESG criteria). In line with the concerns of the public, the rise of sustainable finance dates from the early 2000s, with a strong acceleration in 2020. According to a Morningstar study, assets in sustainable funds reached a record $1250 billion that year. ESG funds have also demonstrated greater resilience in the markets, particularly in times of crisis. Contrary to popular belief, responsible investment funds now offer returns that are comparable to or even better than traditional financial products.

Sustainable finance is favored by investors’ expectations

Investors, especially younger ones, are also increasingly looking to make a positive impact with their investments. According to a 2020 DeVere study, 80% of Millennials say they are looking for impact in their investments, compared to 60% for other investors.

ESG products supported by regulation

To support the development of sustainable finance and to protect investors, several European regulations have been introduced. One such regulation is the Sustainable Finance Disclosure Regulation (SFDR), which requires distributors of savings and investment products to classify
financial products according to a taxonomy of environmental impacts of 10 March 2021.

European taxonomy

To combat greenwashing, the EU has introduced a classification of financial products according to the degree and nature of their impact, starting with environmental impacts, divided into 6 main categories:

• Climate change mitigation
• Adaptation to climate change
• Protection and restoration of biodiversity and ecosystems
• Pollution prevention and control
• Transition to the circular economy (waste prevention and increased use of
secondary raw materials)
• Sustainable use and protection of water and marine resources

The same work will soon be done on the social component. By establishing precise criteria for classifying ESG products, this new regulation aims to provide investors with greater transparency, so that they can invest more easily and with full knowledge of the facts in ESG products.