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What Are Green Investments And How Do They Work?
In this article, we explore green investments, a form of socially responsible investing that supports environmentally friendly business practices.
We are living through a challenging period right now, with stories of inflation, geopolitical tensions and societal crises all making headlines every day. Despite this, more and more people are looking to save money and go green in their daily lives.
They still want to invest, but they are more environmentally conscious, looking for ways to live more sustainably and lessen their impact on the earth.
Is it possible to do both?
Let’s take a closer look at green investing and how it’s helping to meet the changing priorities of today’s investors.
What are green investments?
In a nutshell, green investing seeks to support companies, projects and business practices that are committed to environmental causes (e.g. lowering carbon emissions, conserving natural resources, or reducing pollution).
Green investing comes under the umbrella of socially responsible investing (SRI) and environmental, social and governance (ESG) criteria, but with a specific focus on the environment.
The largest ethical fund in Ireland is the Green Effects Fund, launched in 2000 by the Irish investment firm Cantor Fitzgerald. The objective of this and other green funds is to “invest in companies with a commitment to supporting the environment“, or those that demonstrate a strong corporate responsibility ethos.
These companies may operate in a variety of socially responsible sectors such as recycling, forestry, waste management, water and wind energy.
What is driving the shift towards green investments?
In the last few years, we have seen a much greater focus on environmentally responsible investing, not just from EU regulators but also from institutions, pension fund trustees and millennials who want to see their investments grow with a low carbon footprint.
There are several driving forces behind these changes, including:
A growing awareness of the climate crisis
Following a spate of natural disasters that highlighted the severity of the climate crisis, the amount of new money in ESG funds reached over $70 billion in 2021, which represents almost one-third of an increase over the previous year.
New regulations around sustainable financial growth
In 2018, the European Commission published its action plan for sustainable financial growth, stating that “a comprehensive rethinking of how our financial system works… is necessary if the EU is to develop more sustainable economic growth, ensure the stability of the financial system, and foster more transparency and long-termism in the economy”.
As part of this plan, new regulations were introduced that aimed to standardise the reporting of ESG investment funds, offer greater clarity to socially aware investors, and contribute towards achieving the EU’s net-zero climate targets.
Better returns on green investments
Studies have shown that green investments outperformed non-ESG investments in 2021, and their long-term performance is better too — almost 6 out of 10 EU-based sustainable funds delivered better returns than traditional funds over the last ten years.
Types of green investing — where to start?
Green equities
A good place to start is simply buying stock in companies with strong environmental commitments.
You have a wide range of options available to you — from small companies and startups that are developing alternative energies, materials and technologies, all the way up to huge multinational companies like Tesla.
Green funds
Another option is to invest in a ‘green fund’, a mutual fund or another investment vehicle that only invests in companies that are engaged in environmentally supportive businesses, e.g. alternative energy, green transport, water and waste management, and sustainable living.
Green funds allow you to spread your money over a diversified range of environmental projects, rather than a single stock or bond.
Green bonds
Green bonds are fixed-income securities designed specifically to support climate and environmental projects. They often come with tax incentives, making them a more attractive investment than traditional bonds.
A report from the Central Bank of Ireland shows that Irish green bond holdings increased by 97.5% in 2020 and, according to the Climate Bonds Initiative, approximately $1.1 trillion in new green bonds were issued in 2021.
Beware of greenwashing
In an attempt to capitalise on the growing demand for sustainability, companies often market themselves or their products as being more environmentally friendly than they are. This practice is known as greenwashing, and it is more common than you might think.
In a study by InfluenceMap, around 71% of the 593 ESG funds studied failed a test to determine whether or not they were aligned with the Paris Agreement global targets.
Greenwashing is not always intentional, but the only way to truly evaluate a fund’s sustainability is to examine its assets.
Your impartial advisor for green investments
If you’re looking to explore the world of green investments, the team at Symmetry Financial is standing by to help.
We pride ourselves on being a source of authority on savings and investments, and we have the experience and the expertise to help you make the right decisions for you.
Get in touch today for advice on savings, investments, pensions, mortgages and more — and don’t forget to check out our blog and resources for the latest trending financial news.
If you’d like a free, no-obligation consultation for your mortgage, pension or financial needs, get in touch here, call us on 01 6831673 or email us directly on info@symmetryfinancial.ie.
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