Saving and investing are two actions that respond to very different logics. The first consists of limiting your expenses to generate a surplus of income at the end of the month, while the second invites you to invest this surplus in such a way as to make it grow over time. For many wealth management professionals, paying money each month into a Livret A account corresponds to a savings logic, whereas acquiring shares or fund units on the markets is an investor approach. . What a difference ? The investment horizon, the risk taken… but also the expectation of gain. Where regulated savings vehicles only promise to safeguard your purchasing power, riskier products allow you to envisage more substantial gains in the long term.
Does this theory still hold water if we are interested in ethical or responsible savings vehicles? In this matter, the answer is – again – a little more complex. First of all, you have to know what we are talking about as the offer is vast and covers different types of products. In addition, the notion of virtuous investments also covers a wide variety of nuances.
We must therefore distinguish between solidarity savings and so-called responsible or sustainable savings. The first consists of financing, via part of your money, social and solidarity economy organizations. The latter having low or no profitability objectives, it is therefore largely based on the abandonment of part of its financial performance. The example of sharing books is the most convincing: with these investments, you can reward an association with all or part of your annual earnings, de facto reducing your profitability. As for solidarity funds, they invest part of their portfolio in these same organizations (between 5 and 10%) and the rest in traditional securities. They therefore maintain a profit objective aligned with the market, but their performance trajectory is nevertheless affected by their solidarity pocket. As a result, they generally progress less than traditional funds during periods of rise, but react better when the stock market falls, the solidarity pocket acting as a shock absorber.
“We don’t lose performance with ISR”
In terms of socially responsible investment (SRI), most of the offering is based on funds, whether monetary, bond or, most of the time, in shares. They integrate extra-financial criteria into their stock selection, with the aim of composing a portfolio of companies that perform better on environmental, social and governance issues (the famous ESG criteria).
The consequences of this analysis on the performance of funds have raised many questions since their creation. “For thirty years, it has been demonstrated that we do not lose performance with ISR,” says Grégoire Cousté, general delegate of the Forum for Responsible Investment. Better: according to Matt Christensen, global head of sustainable and impact investing at Allianz GI, all academic studies suggest a positive correlation between ESG and long-term financial performance! The underlying logic is quite intuitive: companies that integrate these issues into their growth strategy are stronger and more resilient over time.
“It is, however, impossible to say that all SRI funds outperform all the time,” adds Matt Christensen. The 2022 financial year also highlighted this with very negative results for these products. “Their returns have suffered more than traditional funds, and this in many categories,” underlines Morningstar in a June 2023 study. A development which is due to the intrinsic characteristics of responsible funds. “Compared to traditional funds, many ESG funds have a structural underweighting of the energy sector, which has outperformed for two years,” points out the data provider while they favor sectors such as technology, l industry and health. The more responsible or sustainable a fund is, the more sector bias it has, and the more likely it is to deviate from the market trajectory measured by the major indices.
In search of extra soul
But the results of these investments should not be judged solely by financial performance. This is the whole concept of double materiality, introduced by European regulations on sustainable finance. This means that overall performance must be evaluated along two axes: its financial performance and its impact on the planet. The first is based on the positive or negative consequences of ESG on economic activities. For example, the scarcity of water can cause supply difficulties and increased costs for businesses that depend on it.
The second studies the consequences of human activity on nature and people. So a company that releases pollutants will have a negative effect on the environment. “It is essential to integrate the negative externalities generated by certain companies, such as pollution, and which are then financed by the community,” believes Coline Pavot, head of responsible investment research at Financière de l’échiquier. This different approach makes it possible to integrate the purpose of these funds. “The performance debate is ill-posed because it is based on a theoretical framework which does not include the price of carbon, climate or even biodiversity,” underlines Hervé Guez, director of equity, interest rate and solidarity management at Mirova. We must not compare ourselves to other funds, but rather set ourselves objectives to achieve, both on a financial and extra-financial level.”
In fact, by choosing a responsible or supportive investment, the saver is generally looking for an extra boost of soul compared to an average product. However, evaluating the second is not always easy. Certainly, when you invest directly in a solidarity property company like Habitat et humanisme, you know that the latter uses the capital raised to build or renovate housing for people in difficulty. The association to which it depends regularly reports on its action. Same readability if you turn to crowdfunding of renewable energy projects. This is less obvious when it comes to listed funds. The latter are increasingly trying to provide accountability via key indicators, particularly on the environmental side, which is the easiest to measure via greenhouse gas emissions in particular. But demonstrating extra-financial performance still remains a challenge for the world of sustainable finance.
An article from the special Responsible Investments report published in L’Express on May 30
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