06.06.2017 .

The age of socially responsible investments as an opportunity

Nowadays, taking a decision on investments, we increasingly more think not only about ourselves and the welfare of our family, but also about clean and safe environment. Socially responsible investments is a trend, which becomes popular worldwide very fast, helping to influence our welfare, therefore investors more and more choose to invest in the companies that are environmentally friendly, promote protection of consumes, human rights and development of the society in general.

Choosing socially responsible investments, responsible investors avoid the manufacturers of tobacco and alcohol, or gambling industry, weapons and fossil fuels. This is an approach that is directed towards future, organizing the Environmental, social and corporate governance (ESG) in the largest companies in the world.

“Any decision on investments should be well considered and correctly elaborated. To split the risks, a diversified portfolio shall be formed, which allows to avoid concentrated investment of funds in one region, one financial instrument or one asset class", states Anzelika Dobrovolska Head of Nordea Investment Product and Service Development for the Baltic countries.

What is a correct way of distributing your money?

The structure of an optimized portfolio helps to ensure the optimal risk and profitability ratio; therefore the correct way of distributing your finances is one of the most important decisions in financial planning. We at Nordea advise splitting your funds into three parts:

  • up to 20% for a financial cushion: one fifth of the funds should be kept as a reserve for covering of extraordinary or unexpected costs. For example, by choosing a term deposit or savings account, your money is easily accessible and not exposed to big risks. This is the money that serves the safety purposes; therefore profitability is of little importance in this case.
  • 60% to 80% for increasing of the financial soundness: an optimized portfolio consisting of diverse financial instruments, which meets the investor’s profile and is a long-term investment. For instance, endowment assurance, pension funds or investment funds portfolio;
  • up to 20% to use the possibilities of the financial market: the most concentrated investments where the investor sees a short-term potential. This type of investments involves a higher level of risk, but its influence over the total portfolio in case of loss is not big. It can include the stock of some certain companies, index-linked bonds or other specific instruments.

Socially responsible investment incentive

Despite the fact that climate and environment investments are highly concentrated and are recommended for use as a small part of portfolio, the investment incentives demonstrate that these solutions can help in using of market possibilities that are not yet explored and earning a desirable profit. Socially responsible investments have a number of incentives:

  • Economic incentive: a desire to save funds;
  • Environmental incentive: reduction of a negative effect of external factors;
  • Political incentive: to become independent from funds, to earn votes in elections and to generate employment;
  • Corporate incentive: to focus on sustainability, competitiveness, environmental risks and innovations;
  • The increasing interest of customers in sustainable and responsible investments.

“Climate and environment as an investment pattern is a fundamentally growing tendency in a long-term perspective. Currently many climate solutions have reached the economic break point and their influence over a company’s cash flow is not still clearly understood, therefore, investing in companies which gain directly from climate and environmental solutions implies ample opportunities for profit where the others do not see any potential”, states Anzelika Dobrovolska.

Possibilities of climate solutions

For example, Nordea Climate and environmental investments basket consists of about 1000 enterprises, which market capitalization exceeds 5 trillion EUR. To make the offer more obvious, the climate solutions can be divided into three groups of investments:

  • 5% alternative energy: renewable energy, solar and wind energy;
  • 70% efficiency of sources: energy efficiency, smart energy grid, ecomobility, agro- and bio-fuels, “smart” construction, advanced materials;
  • 25% enterprises linked to environmental protection: clean water and air, waste disposal, environmental services.

Why choosing socially responsible investments? It allows joining the market segment with a very strong growth percentage and using the potential of underresearched and contradictory sphere, at the same time making the money work for you and for the society. This is a type of thinking that contributes to the growth of competitiveness, helps to attract higher investments and makes positive changes in improving the environment.

The historical profitability of the securities mentioned herein is for information purposes only. The historical profitability cannot be considered as a reliable index of future investment results – their actual return can differ significantly from the figures mentioned herein. This information should not be perceived as an investment consultation or an invitation for a financial instrument transaction. Please carefully read the regulations and terms and conditions for every specific investment product prior to taking a decision in relation to investing and evaluate it in terms of matching your investment portfolio, your interests and your risk profile. Nordea will not be held liable for any loss that a customer may incur by relying upon the information contained herein.

For more information:
Edgars Zilde
, Nordea Communications Project Manager, phone: 6 700 5434, mob.: 28 452 975, edgars.zilde@nordea.com