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How to invest in ethical and solidarity funds profitably

How to invest in ethical and solidarity funds profitably

Investing in solidarity and with ethical criteria is a bet on the rise. Caring for the planet or fighting poverty are some of the objectives.

Sustainability, ethics, and solidarity are not at odds with profitability. Especially since they have become the reference axis of some investment funds. These are financial products that allow obtaining a return with minimal amounts.

Ethical and sustainable funds group those companies that meet standards of social welfare and sustainability. These, in solidarity, donate part of their commissions to social works. There are also mixed ones when they fulfill both purposes. They work the same as other funds. They do not require a minimum investment and the risk is the same.

There is still not a great diversity of funds, but they are gaining popularity. 

“Currently, the youth wants to invest in funds to take care of the environment. But at the same time they do not want to neglect profitability. This is one way of achieving it.” 

Says Borja Nieto. The director of Micappital. A private banking and digital advisory service for investors that works with entities such as Banco Sabadell.

“In a short time, 75% of our portfolio will be sustainable. A little over three years ago, only 3% were looking to invest in such a fund. Today around 15% do so.” Adds Nieto.

In Spain, there are 2,730 funds. 

They add up to a total management assets of 277,000 million euros approximately. This according to data from Inverco, the Spanish employers’ association that groups together collective investment entities. Of these, just over 20 are governed by these types of parameters. (1.2%, equivalent to around 3,700 million euros.) Even so, 

“Until recently, a sustainable fund did not appear among the 20 most visited. Now it does.”says Vicenta Varo, content director of Finect, a platform for financial products and services.

What is an ethical sustainable fund?

These funds are defined by a series of criteria known as ASG. These stand for Environmental, Social and Governance (ESG). The objectives of these criteria are, among others:

Caring for the environment

  • The efficient and responsible use of natural resources
  • Integration of gender and race in their teams
  • The promotion of occupational risk and human resources policies
  • Promotion of conciliation
  • The promotion of equality in the boards of directors
  • Support for research projects with social purposes
  • The fight against poverty and climate change

To be part of an ethical or sustainable fund, a company must meet all the ESG requirements. These are collected and specified in the National Securities Market Commission (CNMV). And in the information brochures of the different managers.

To verify a fund is truly sustainable and ethical, there are different independent rating agencies. 

  • Spainsif. A benchmark platform for sustainable and responsible investment in Spain. Or
  • Morningstar. Which publishes a sustainability rating, where the degree of compliance with ESG criteria by funds.

How to invest in ethical and solidarity funds profitably

What is a solidarity fund?

This type of fund aims to directly help society through financial contributions. The entity that sells it, donates part of the commission.  Participants can also do it directly,  voluntarily allocating the percentage they consider appropriate. These may include NGOs, foundations or associations. They all protect the environment, promote the integration of people, or support academic training or volunteering.

Some entities give the participant the option to select the organization to contribute. These options must be detailed in the information brochure. And they are made available to the public, with prior approval by the CNMV.

These funds, like any other financial asset,  are regulated by the CNMV. 

“they must assure they make an economic contribution to non-profit entities. So their accounts go through audits and are subject to internal control measures. All you have to do is look for the records of the investment fund. Then, see the details of the positions. ” Explains Varo.

Do not confuse an ethical and sustainable fund with a solidarity one. Solidarity funds are not required to meet the socially responsible criteria. There are, however, funds that combine both philosophies. They are subject to the ESG criteria and are supportive. They donate part of their commission or interest.

How do ethical and sustainable funds work?

They do it like any other funds. Their general characteristics are:

  • They can be fixed, variable or mixed income. They are subject to fluctuations imposed by the market.
  • The composition of the portfolio (the companies that make up the fund) must be public.
  • Also,they do not require a minimum investment.
  • The risk is the same as in any other investment.

Regarding the time of permanence, in general 

“the recommended period to invest in a fund should be at least three years. And ideally five to seven years. This is due to the fact that the markets are volatile. In shorter terms, the probabilities of obtaining interesting returns are lower. ” Points out Varo.

They are subject to the same tax policy as the rest. You only have to pay taxes when the money is recovered. Also, It can be transferred from one fund to another without any type of taxation. When the final refund is requested, the capital gain (profit) will be subject to a withholding. The first 6,000 euros are taxed at 19%. From there, it goes to 23% as a ceiling.

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