Sustaina­bility costs money

Investing sustainably is on trend. But when is an investment really “green”? Are good returns and a clear conscience mutually exclusive? We spoke about this topic with Prof. Kerstin Lopatta, an expert on sustainable investment.
To the interview

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To the interview

What does sustainability really have to do with money?

Sustainability costs money. I think that’s a good way to sum it up.

We all know what money is. But what exactly sustainability is, is a bit more complicated. In very general terms, it means meeting the needs of people now without causing a risk that future generations will no longer be able to meet their needs.

There are lots of aspects to this: for example, global challenges like climate change and scarcity of resources. Then we have the Sustainable Development Goals of the United Nations’ 2030 Agenda, which aim to protect the environment, reduce social inequality, and achieve sustainable growth. But how can we actually do all this? We are going to need technological development and innovation, first and foremost in the fields of clean energy production, mobility, disposal and supply. Innovation like this calls for high levels of investment. Because, as I said, sustainability costs money.

And how can I tell whether an investment is sustainable?

At the moment, that’s still difficult. We currently do not have a standard definition of what the threshold is for labeling companies or business activities as sustainable. We do now have the first legal guidelines to tell us what makes a sustainable financial product. But the assessment used depends very much on the values system applied – one clear example of this is the classification of nuclear energy as “green”.

The European Union has also noted that there are flaws in the system used for labeling sustainable financial products. To remedy this, it has launched the action plan on financing sustainable growth. This action plan encompasses activities such as the EU Taxonomy Regulation, which aims to achieve a uniform understanding of green economic activities. Then we have the disclosures regulation, which obligates investors to provide transparent reports on the extent to which sustainability aspects are taken into account in specific financial products.

And we can also think about what else we can do. The EU says that sustainability labels could help shed light on the matter, particularly for small-scale investors.

Do established sustainability labels already exist?

Yes. For example, there is the FNG label for specific financial products, developed by the German Sustainable Investment Forum (Forum Nachhaltige Geldanlagen). Universität Hamburg’s Sustainable Finance Research Group provides expert support and management for the label, which is considered the quality standard for sustainable investment in the German-speaking world.

This type of official sustainability label has not yet become standard, though. How can investors distinguish between sustainable investments and greenwashing?

That is still a difficult question. If we are to avoid greenwashing of investment products, we need transparency so that we can check any statements and claims made.

I already mentioned the EU action plan and the reporting obligations. This means that we are making huge progress. The action plan also aims to strengthen sustainability reporting. Large publicly listed companies in the EU are already legally required to report on sustainability topics that are relevant to them. A draft bill was published in April 2021 aiming to extend this reporting requirement. Essentially, the EU is trying to increase transparency and to standardize reporting systems and formats. This is the only way to check and compare targets, data, and companies, and to limit greenwashing.

Does this mean that if a financial product is promoted as “green” but has no specific label, we should be skeptical?

That is not necessarily the case, but it does mean that particular due diligence is necessary for investors and that they should investigate the fund for themselves. I would definitely recommend that small-scale investors who want their investments to be sustainable look for these labels. I would also advise everyone to look very carefully at which products they want to buy. You can look, for example, at whether the company has incorporated sustainability into its strategy and whether its management is concerned about the issue. Another good idea is to look at whether the company has drawn up relevant targets and measures and whether it monitors achievement of these targets. It is also important to ensure that companies provide transparent reporting on whether the targets are achieved and if not, why not. That involves a lot of effort, which is why labels are very helpful for small-scale investors.

Another important question is, do sustainable investments make money?

Opinions are strongly divided on that question, especially in the academic community, which has looked at the topic in great detail. The predominant picture that we have gained from meta studies, which are studies that collate the results of thousands of smaller studies, is that there is a positive correlation between sustainable investments and returns.

However, the differing definitions of sustainability make this sort of analysis difficult. As I said before, everyone interprets sustainability differently and the factors used to measure the sustainability of a company also vary greatly. This means that the results are different depending on which study is based on which data.

But to give you a short answer to your question, yes, sustainable investments do make money. I also think that they are a key step towards a more sustainable world, and the only way that we can fund the essential transformation of our economy.

Money makes the world go round

There’s a German saying that translates as “money rules the world”. A similar phrase – “money makes the world go round” – exists in English and French. The Spanish, meanwhile, keep it short and snappy with “money is king”. Whatever the language, the meaning is the same – money gives you influence.

More and more companies are shouldering responsibility, too. For example, they are investing in sustainable solutions to protect the climate and the environment. Each and every individual can do their bit to make development more sustainable, too.

What’s important is what we do with it

Green money

Shopping is not the only way in which private indi­vi­duals can use their money to boost sustainability. Here are a few more ideas:

1Greener donations

2Greener banking business

3Greener investments

4Greener business models

5Each click of your mouse is worth money

Sustainability – turbocharging the economy

A boom in sustainable investment

Even just a few years ago, sustainability wasn’t a particularly important issue for mainstream investors. Now, they are increasingly demanding detailed information and showing by means of their critical inquiries that this issue has become important to them. Simone Schlief, responsible for ESG at Investor Relations (IR)

Defining sus­tain­a­bi­lity clearly in finan­cial investments

Climate change mitigation
Climate change adaptation
The sustainable use and protection of water and marine resources
The transition to a circular economy
Pollution prevention and control
The protection and restoration of biodiversity and ecosystems

For some sectors, the activities classified as sustainable under the terms of the EU ta­xo­no­my have already been defined. In other sectors, there are plans to define criteria, and the possibility of reviewing and expanding existing criteria has also been announced. The EU taxonomy is therefore a regulation that is to be developed and expanded on an ongoing basis – and there are many discussions and differences of opinion in the EU about both the current criteria and the further criteria being planned.

What does the EU taxonomy mean for Deutsche Telekom?

The initial imple­men­ta­tion of the EU taxonomy was a real challenge – and called for teamwork by various Finance units within the Group – but it also offers an opportunity for us to show how sustainably we have established our business. Christina Hass, Senior Expert in Group Performance Controlling

Expert assessments

Through our commitment to sustainability issues, we also want to win over financial market stakeholders. We can only succeed in this if we offer high levels of transparency and honest communication – and that’s why we prioritize CSR reports, ratings and rank­ings, and direct dialog with investors. Melanie Kubin-Hardewig, Vice President for Group Sustainability Management

Good scores for the T-Share

The T-Share is listed in key sustainability indices and is regularly given excellent scores and rankings in ESG ratings. Here are some examples:

1ISS-oekom

2Carbon Disclosure Project (CDP)

3Dow Jones Sustain­ability Index

4Sustainalytics

5FTSE4Good

6V.E. (Vigeo Eiris)

7Bloomberg

Work as an employee? Enjoy joint ownership, too!

Green pension scheme

Deutsche Telekom invests sustainably, too, investing the assets for our company pension scheme (defined benefit plan obligations) in the Telekom Pension Fund in line with our sustainability principles. We have been factoring in – since 2013 – ecological and social principles, as well as guidelines for good corporate governance, in selecting these investments. Our aim is to combine attractive expected returns with a focus on sustainable values.

We are proud of the fact that we have so far been able to de­mons­trate really suc­cess­ful invest­ments for the Tele­kom Pension Fund, and these have al­ready won a number of awards. In par­ti­cu­lar, we were again crowned “Best sus­tain­able investor” in the portfolio institu­tio­nell Awards in 2020.
Carsten Velten, Head of Pensions at Deutsche Telekom AG and CEO of Telekom-Pensionsfonds a.G.

Transparent tax returns

Andreas Anhalt / Juve Verlag
We work closely with local tax authorities in a trusting and transparent partnership. No other corporate group in Ger­many submits its tax returns as early as Deut­sche Telekom – we submit ours at the end of March of the following year.
Prof. Dr. Christian Dorenkamp, Head of Group Tax at Deutsche Telekom
Andreas Anhalt / Juve Verlag
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