Green Investing in Your Portfolio. Is it time?
“Green investment” is a broad term, encompassing many investment categories related to socially-responsible investing and ESG (environmental, social, and governance) investing (OECD 2012, p.6). Green investing can be taken literally (e.g. investing in companies with initiatives to address the effects of greenhouse gas emissions). It can also be taken in a bigger context. It can pertain to investments on companies that are geared towards operating under the sustainability umbrella.
The emergence of green investing comes with the realization that the use and abuse of natural resources come at a high cost. The effects could be devastating if not mitigated early. Such problems used to be handled only by state governments. The biggest international effort on the emission of greenhouse gasses is the Kyoto Protocol, which has yet to be signed and ratified by other countries (one of them is China, the world’s biggest producer and consumer of coal). But international organizations like the United Nations have also drawn the support of the private sector, especially the multinational corporations, since their production and operation contribute a great deal to the emission of greenhouse gasses. The United Nations Global Compact, a “strategy policy initiative for businesses that are committed to aligning their operations and strategies to the ten universally accepted principles in the areas of human rights, labor, environment and corruption” (United Nations Global Compact 2013), organized the World Business Summit on Climate Change. This summit gathers business leaders from various industries to reduce emissions significantly by 2020 and 2050.
because it puts them in a win-win situation with their consumers without compromising their profits. For one, an announcement to the public that they are launching a product that is energy-efficient can potentially enhance their reputation with consumers and investors. Energy-efficient and environment-friendly initiatives may be capital intensive at first but benefits are expected to surface in the long run. In addition to that, companies specializing in renewable are encouraged by the government to enhance their products and operations in exchange for tax benefits and a lot of subsidies.
Is it worthwhile to include “green investments” in the portfolio? John Wasik of Reuters reported that one of the biggest apprehensions of investors is that “green funds haven’t been around very long, so most of them don’t have track records that run through several bear markets” (Wasik 2012). In other words, green investing needs more time to blossom and prove its worth.
An investor has the right to hold reservations on a relatively new kind of investment. However, more than contributing to a socially pressing issue, an investor can think of green investments as a “sustainable” investment, since the company’s target is to operate in a sustainable manner as well. Joseph Keefe of Pax World Management remarked that “there was no evidence that managers focused on companies committed to improving environmental, social and governance factors were at a disadvantage” (as cited from Sullivan 2013).
Cutting back on non-renewable energy cannot be done abruptly. Many of today’s machines still run on fossil fuels. It’s a gradual shift to sustainability. Green investing should be treated the same way. It is not wise to focus solely on “green stocks and bonds”.
Follow the tips below to get yourself started:
1. Get to know not only the companies, but the entire story on sustainability as well.
Sustainability is a complex issue and no single institution has it figured out. Many companies, even the bigger ones, are still trying their hand on environment and socially-responsible practices. It is important to keep abreast on environment sector updates, to know which technologies are promising. It will help determine which companies will give you desired returns.
2. Do not let go of your other “non-green investments” just yet.
It could be tempting to do so, especially if you’ve been blessed with the passion to act towards sustainability. If, however, you want to sustain your portfolio, do not take such huge a risk so quickly. It is important to test the waters if you are new to this.
3. Limit the Green Investing Sector
At least, on the first try. This piece of advice is relation to number one. In the process of reading up on the green investing, analyze which sector of the green industry is the most progressive. You have to study where the best opportunities for financial growth lie if you plan to add green investments in your portfolio.
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Anna works in a foreign donor agency while pursuing her graduate studies in International Studies. She hopes to become a diplomat someday, although she is open to the idea of pursuing other fields in International Relations. She believes that it is every individual’s responsibility to be financially smart and to invest wisely. Anna uses her knack for writing and researching to propagate financial literacy. This free spirit draws energy from dancing, exploring new places, and soaking up random knowledge.