The term green investing means using capital investments to support certain business policies that cause a positive impact to the environment. This type of investing is often clubbed together with other forms of socially conscious investing that fall under the environmental, social and governance (ESG) group. Green investors keenly follow companies that are committed to preserving natural resources, cutting pollution, and on other environmentally focussed projects from businesses.
Green investors purchase bonds, ETFs, index and mutual funds, or invest in equities in businesses that focus on environmental projects. Although profits are not the only goal sought by green investors, there is growing demand for such securities. Green investor Climate Bonds raised their 2021 forecast for green debt investments to half a trillion dollars, underscoring this demand, while Financial Times had reported that returns in green investments have been steadily rising.
Some areas green investors focus on is in the power sector, especially companies that invest in renewable energy projects. Other areas of focus include research into climate change, creating alternatives to plastic use that are biodegradable, or cutting down emissions from burning fossil fuels. There are green investors who only look at purely green companies such as renewable energy companies, while some others focus on how efficiently they can use their funds for minimizing harm to the environment.
GROWING FOCUS ON GREEN INVESTING
While green investing was once considered a low-return sector, things have improved over time. Green investing has seen renewed focus because of the attention the climate crisis has received. The World Bank wrote that Greenfield FDI in renewable energy reached over $85 billion in 2020, after that year was recorded as the warmest ever on record.
Green investments have also performed well. Morningstar reported that ESG companies outperformed the wider market in both India and the United States. It was “evident” that companies that manage their ESG risks well performed better than their peers, Morningstar said.
CAN YOU TELL IF GREEN-FOCUSED COMPANIES ARE LEGIT?
There are companies and funds that overstate their commitment to environmental causes. This has given rise to the term ‘greenwashing,’ where companies looking to take advantage of the increased demand into sustainable investments, exaggerate their green commitments in the hope of luring investors.
Every security that claims to be green is representative of the initiatives that the security supports. If it is a stock, it represents the policies of its company. Green funds represent the stocks that are contained in them. This is how investors can identify the right kind of security to invest in that aligns with their ethics. Investors must conduct thorough research before they identify such securities for their portfolios.
At Savart, we prioritize our investors’ ethical and moral values. To this end, we have created investment filters where you can exclude sectors that are not compliant with your values. For example, our environmental filter will help you exclude investment advice pertaining to sectors such as mining and oil exploration. Similarly, we have other filters to ensure your investment meets your moral criteria such as whether they are Sharia-compliant, Jain friendly and excludes alcohol and tobacco companies. You can Sign Up to know more about this feature.
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