By 2019 at least $30.7 trillion1 are held in sustainable or green investments, up 34% from 2016. It was estimated that the green market debt andtotal assets under management of ESG and sustainability grew approximately by 12 times and 7 times respectively from 2013 to 2018. In the coming decade,it is expected that these green stocks could overtake the current technology giants to become the world’s most valuable companies.
What are Green Investments?
Green investments2 are traditional investment vehicles such as stocks, ETF (Exchange-Traded Funds) and mutual funds in which the underlying businesses are involved in operations aimed at improving the environment. They focus on projects3 that are committed to the preservation of the environment such as pollution reduction, fossil fuel reduction, conservation of natural resources, generation of alternative energy sources, etc. NextEra Energy, Enphase Energy, SunRun, Ormat Technologies, etc. are some examples of green stocks.
The Rise of Green Investing
There is an increasing demand from investors around the globe for socially and environmentally conscious options4 for investing. Factors like climate awareness, the policy shift and the reduction of costs due to technology advancement are making green stocks look promising and prosperous.
The survey was done by Morgan and Stanley5in 2019, found that 80 % of asset owners believe that companies with strong ESG (Environment, Social and Governance)practices may make better long-term investments, but continue to need better reporting and data to evaluate holdings on those criteria.
The 2020 Global ETF Investor Survey6 by U.S. private bank Brown Brothers Harriman (BBH) estimated that 69% of global investors planned to increase their ESG ETF allocation in the next 12 months.The same Survey7 done in 2021, revealed that 72% of global ETF investors plan to increase their ETF allocation over the next year.
In 2021 ‘The Economist’, with a total market capitalisation of $3.7 trillion, constructed a portfolio8 of companies benefitting from the energy transition. It was found that its market capitalisation, since the start of 2020 has risen by 58%, twice the increase in the S&P 500. Global Investment Flow into ESG reached $180 billion in the first quarter of 2021, up from $46billion in the same quarter of 2020 which is a quantum leap by any standards.
Conclusion
Even though the technology of this industry is unproven, and several firms are competing in the arena, more and more investors are still finding Green Investing to be a very prospective proposition.
Learners’ Opportunity
The world is investing more in green. How do you include an environmental dimension in your business? To be successful, the managers need to quickly get into the new circumstances. But the ability to adapt is not always easy to come by. MBA program from IFHE serves a solid foundation in academics and enables the learner to achieve a new sense of professional fulfilment. Various eLearning and flexible learning methodologies support this. Check out @ https://online.ifheindia.org/
Discussion Questions
- Do you think ESG investment makes a case for tax rebate? Why?
- What risks do you foresee in green investments?
- What initiative do you think the governments can undertake to foster green investments?
References:
- Reed Landberg, A. M. (2019, June 7). Green Finance Is Now $31 Trillion and Growing. https://www.bloomberg.com/graphics/2019-green-finance/.
- Madhuri Thakur, D. V. (n.d.). Green Investments. https://www.wallstreetmojo.com/green-investments/.
- WGECO. (n.d.). Green Investment. https://wgeco.org/green-investment/#.
- Smith, E. (2020). The numbers suggest the green investing ‘mega trend’ is here to stay. https://www.cnbc.com/2020/02/14/esg-investing-numbers-suggest-green-investing-mega-trend-is-here.html.
- Stanley, M. (2020, May 28). Seven key findings show how sustainable investing is gaining traction among asset owners. https://www.morganstanley.com/ideas/sustainability-investing-institutional-asset-owners.
- Investor, S. 2. (2020). https://www.bbh.com/resource/blob/41560/9b92ebaaa441a7ba393ccddf7b5d677d/2020-etf-survey-pdf-data.pdf.
- Harriman, B. B. (2021). 2021 Global ETF Investor Survey. https://www.bbh.com/us/en/insights/investor-services-insights/2021-global-etf-survey.html.
- Economist, T. (2021 May). A green bubble? We dissect the investment boom. https://www.economist.com/finance-and-economics/2021/05/17/green-assets-are-on-a-wild-ride?utm_campaign=the-economist-today&utm_medium=%E2%80%A6.