Dyesol : A Concept, an Idea – and an Investment Strategy: Sustainability

Sustainability is an often (over-)used buzzword - especially when it comes to investing money. What sustainability actually means, how it can be translated into specific investment strategies and, last but not least, how Dyesol fits into all this, will all be explained in the following article.

First in Forestry

Of course nobody really doubts that Dyesol is a "sustainable" company. But what does this actually mean? The concept itself was first used in forestry, describing the call not to chop more wood than a forest is able to regrow in its own time. So it is about keeping a balance and preserving something for future generations. It is about reasoning, thinking and acting farsightedly. At its core, this key concept can be found in all modern definitions of sustainability. Today it is about acting coherently in a social, environmental and economic dimension to the effect that a good life is possible today and will be possible tomorrow. This idea is permeated by a fundamental ethical thought which postulates fairness, responsibility and vision.

Sustainable investments continue to grow

When sustainability becomes a principle of investment, it may seem that one has to choose between moral prudence and profits. But these goals do not have to collide. Otherwise sustainable investment would not become more and more attractive even for mainstream investors, which is clearly indicated by their growing volume: according to a market overview recently published by the FNG (The German, Austrian and Swiss Sustainable Investment Forum), the volume of sustainable investments in Germany, Austria and Switzerland alone (the so-called D-A-CH countries) has grown by 47% in 2014 and is now as high as 197.5 billion Euros. And they are not just limited to niche markets: mainstream investors use exclusion criteria to build their portfolio by systematically neglecting certain industries, for example weapons, tobacco or pornography. This is a first of many different instruments designed to add a sustainable perspective to the investment process.

Turning an idea into practice

Sustainability can be integrated into the investment process in many different ways. Today there are quite a few approaches helping investors to turn their ideas of sustainability into real assets. The most common instrument is exclusion, as mentioned above: if certain countries, industries or even single companies violate sustainability criteria, they are banned from the pool of potential investments. For example, many institutional investors do not buy shares of companies whose revenues from an outlawed sector exceed a certain percentage of overall turnovers.

Another popular instrument is called "best-in-class". As the name already gives away, this approach singles out companies that perform better than their peers with regard to sustainability criteria. As it relies highly on comparisons, this approach enables investors to consider companies from industries such as mining, which does not come across as a per se sustainable sector.

It is easy to understand how sustainability themed funds work; however, they may come with different key topics. There are ethics funds and eco funds, and especially relevant for Dyesol, there are funds focusing on certain industries or subject clusters, such as water, wind energy or renewable energies. German institutional investor Allianz, for example, set up the Global EcoTrends fund. This fund invests primarily in companies active in sectors like "eco energy" (alternative energy sources and energy efficiency), "pollution control" (environmental quality, waste management, recycling) and "clean water".

Another strategy is called "engagement and voting". It relies on a continuous dialogue with portfolio companies in order to influence their sustainability performance. This engagement is supplemented by using voting rights during the general meeting in order to promote changes towards a more sustainable business approach. The underlying agenda is usually guided by applying a set of ESG criteria (ESG = Environmental, Social and Governance). These criteria refer to all three dimensions of sustainability - environmental, social and economic or governance-related - and set standards or contain recommendations for implementation within the company.

If these ESG criteria are explicitly used - on top of the more conventional financial key performance indicators - in order to evaluate a company as an investment case, it is called "integration". Latest approaches towards an integrated view try to overcome the gap between financial and sustainability-driven data in favor of a model which tries to fuse the two dimensions, adding materiality and relevance to sustainability.

Considering Tomorrow

Not only investors will be compelled to deal with sustainability. The 21st century's challenges - global warming, poverty, a growing population - will be everybody's business.