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What is meant by “Sustainable Investing”?
Sustainable investing is a socially responsible investing philosophy wherein an investor considers both financial return and social/environmental good as well as corporate governance (ESG) factors into account.
This allows investment amounts to be used to promote positive societal impact and corporate responsibility without compromising long-term financial returns.
One can start the journey of sustainable investing with trading strategies consciously by keeping away from companies that clash with ESG principles and prioritizing the industries ingrained in sustainable investments.
Is ESG investing profitable?
Investing in ESG instruments does not mean jeopardizing financial returns. In recent years sustainable investing has grown substantially and all around the world, the trend of environmental, social, and governance (ESG) investing is picking up faster than ever.
Morgan Stanley Institute for Sustainable Investing carried out a study of around 11,000 mutual funds in 2019. The study revealed that there was no financial incompatibility in the return of sustainable funds compared to traditional investments.
The study also showed that sustainable funds have significantly lower downside risk and surprisingly sustainable funds proved to be more stable performers in times of volatility. The study and many other stats carried out by a few other fund houses quash the common misunderstanding that ESG investments are dicey and underperform their traditional counterparts. Not only this, the study clearly stated that ESG funds offer less risk and volatility and also outperform conventional funds.
Sustainable investing, a new trend is here to stay, and adding more sustainable assets and strategies to the portfolio by the fund managers is going to only go up as the market returns to fund their way up north.
Where Can I Find ESG Investments?
Some well-known and top-performing ESG funds commonly used by investors in India are Aditya Birla Sun Life ESG Fund, SBI Magnum Equity E.S.G Fund (the oldest ESG Fund in India), and Kotak E.S.G. Opportunities Fund.
When SEBI issued green bonds guidelines in 2017 India became only the second country in the world after China.
Europe and the US account for more than half of global ESG investing and the whole process of investing is robust and aims for more expansion. In all likelihood, the next big wave of ESG investment could come from Asian countries, especially India and Japan.
Besides mutual funds, green bonds, and companies that prioritize ESG investing platforms are concentrating on social responsibilities, impact, and sustainability like carbon credit investing which in turn mimics ESG investing.
What are examples of sustainable investments?
There is a large number of investments that can be called “sustainable”. Industries that follow the environmental, social, and corporate governance (ESG) framework advocate good environmental practices through renewable energy sources or by tackling air and water pollution. Well, this is the idea many get when they think of ESG investing. Investing in companies that support human rights or ethical corporate culture is also sustainable investing. Companies that form policies to reduce carbon emissions should not be neglected too.
Below, we will look at the myriad of ways that savvy investors are looking to align their portfolios and profit and thus balance the work of those who are trying to make the world a fit, finer and flourishing place to live.
Many investors target investments toward companies and opportunities that take reducing the emission of greenhouse gases seriously.
Some may prefer to buy shares of particular companies that are top-notch with inventive products and original business models, while others may choose to invest in a diversified portfolio through exchange-traded funds (ETFs) and the latter is slowly but steadily catching up in India.
On the global front, the recent development in NVidia’s surge in the stock market and innovation is rising eyebrows. The company specializes in manufacturing GPUs that play a key role in artificial intelligence and data. For investors, the chipmaker looks like the next Microsoft. Investors should also keep their eyes open to spot and grab such opportunities in India.
Here are a few ideas to find your ESG purpose and balance your profit.
Green Houses Gases
A. Electronic Vehicles.
If you want to trace back the roots of human emissions it can be found in 1950 when the greenhouse gases- more precisely- carbon dioxide, carbon monoxide, nitrous oxide, and fluorinated gases started spreading poisonous tentacles around the world.
To tackle this vicious trend, an electronic vehicle is a good starting point to invest in for pollution reduction. Equipment required for manufacturing EVs like batteries, light detection, and ranging sensors would be your choices to invest in.
B. Commercial and Residential Real Estate.
Commercial and residential real estate is a top is another sector that plays a part in global greenhouse gas emissions.
The major source of pollution is the heating and cooling needs that are involved in the construction of different types of buildings.
Investors can look into manufacturers of windows and doors and also lighting which are energy-efficient and will help in reducing carbon footprints.
C. Waste Management and Recycling.
With the rising population, there is a growing need for waste management which is an effective and responsible way of collecting handling, and processing of waste.
There are plenty of opportunities for the investors in public market in the area of waste management and recycling. Many companies are making effective waste removal, and handling of hazardous waste like maritime and pharmaceutical waste as their focal point.
D. Sustainable Energy Sector.
Most popular among sustainable investors is the energy sector which focuses on solar energy, wind and tidal power, and battery storage. There is an ever-increasing demand for clean energy. Therefore, investing in such industries has immense growth potential. Investment in such sectors will not only make you morally balanced but also reduce your risk substantially and the long-term gains are guaranteed especially in India where the energy demand is growing at a robust pace.
The Indian government had set an ambitious target to tackle and reduce carbon emissions to zero by the year 2070. The government also aims to generate a massive five million tonnes of green hydrogen every year. Sectors like refineries, steel, urea, and non-fertilizer are under the government radar which investors should also keep on their watch list.
Is ethical investing just hype?
Well, what makes ethical investing different from ESG or green investing?
Say, two investors who support clean energy industries may disagree on if nuclear energy be allowed to call “clean” energy.
Moreover, ethics are subjective. So investors who tilt towards ethical investing can use their ethical principles as primary filters. It’s up to investors to take the call and it is always prudent to consider a financial advisor for insights, be it ethical, green, or any sort of investing.
The “Green” Bottom Line
Many corporates, fund managers, individual investors, and governments around the world are pushing their policies and strategies toward a greener future.
In a nutshell, this is what all the parties above tend to do
• Working at reducing pollution and waste.
• Buy shares of individual companies or invest in a diversified portfolio through the use of ETFs and those companies should have innovative products and models like those discussed earlier in the article.
Impact investing or ESG investing was once “just a fad” but now a lot are paying attention and why not when we can use our consumer and financial leverage to avoid a climate disaster and make a difference in the world? After all, isn’t this the best way to contribute to the community and encourage social responsibility?
India’s real GDP of 7.2 and the government’s proactive stance on green energy initiatives in solar and wind power projects have attracted a lot of Foreign institutional investors (FIIs) attention and inflows and India is a preferred destination to its global peers. This can give a boost to the economy both economically and ethically. Such initiatives will likely spark further transformations. Many opportunities will pop up for the investors to grab and grow their cash ethically and responsibly by contributing to society and nature.
