In a world that is constantly looking at new ways to live sustainably and people choosing environmentally friendly alternatives over previous norms, it is only right that the investing world should follow. Green investing is a form of socially responsible investing where companies make investment decisions that support environmentally friendly practices.
Driving ethical change
Newly introduced EU regulations regarding ESG (Environmental, Social & Governance) Investing recently came into effect. These aim to standardize the reporting of ESG investment funds and puts a greater emphasis on them as an overall investment strategy. This EU-wide classification system gives greater clarity to socially aware investors who are looking to put their money to work in funds which are not ethically compromised.
These new regulations also contribute toward achieving EU’s climate goals including the EU ‘net-zero 50’ target with a focus on climate change, and using technology to transform the mindset of industries towards transitioning to a low-carbon economy.
Incentive for Green Investing
We not only now see pressure from EU regulators, institutions, and society to drive environmentally responsible investing, but also by Pension fund trustees and millennial’s who want to see their investments grow with a low carbon footprint. Once being seen as too expensive and little proof of out-performance over their counterparts, this has now started to change. Millennial’s in particular who’s objective is to invest for the future and achieve long term capital growth can now look to do so through a range of ethically screened stocks.
The incentive to invest in ESG funds do not just appeal to investors from a sustainable point of view. Studies show they have also outperformed their non-ESG peers over the past 10 years. In a study conducted by Morningstar (one of the worlds most trusted data providers), closer to six out of ten sustainable funds have delivered better returns than traditional funds over the last decade. They also examined the long-term performance of 745 Europe-based sustainable funds that showed their performance were also higher over one, three, five, and ten year periods.
The Covid-19 market sell-off also proved that sustainable funds perform better than traditional funds in time of economic crisis and unusual market conditions. With the recent coinciding of the oil market collapse and the double blow by the Covid-19 pandemic, this was seen as a good example of the above as was assisted by the structural decline in the market for fossil-fuels and energy stocks. An additional driving force behind this is the decarbonization approach by many countries as well as technological changes to make renewable energy a preferred option going forward.
Having little exposure to the above-mentioned energy-based stocks has only added to the extreme popularity that ESG funds have enjoyed recently.
How can I start investing in ESG Funds?
Investment firms like Cantor Fitzgerald have long been driving the change for ethical investing. With the launch of their ‘Green Effects Fund’ back in 2000, it is now the largest ethical fund in the Irish market. The objective of these green funds is to invest across a broad base of socially responsible sectors such as recycling, waste management, wind energy, forestry and water-related businesses in a wide range of companies with a commitment to either supporting the environment or demonstrating a strong corporate responsibility ethos.
In light of all of the above, there has understandingly been a much greater emphasis put on providing more choice and a greater range of green investment opportunities to individual investors.
As new investment funds, ETFs and structured products are all getting in on the game it can be hard to search through the noise and find a suitable solution.
If you would like to find out more on Green (ESG) investing, chat to one of our advisors at Smart Financial today!