Market Update - Green investing for the future of our planet
Green investing for the future of our planet
Elon Musk has made no secret of his goal to colonise Mars which he views as a back-up planet to Earth. That’s quite a challenge. Surely, it’s better to try and change things here? The red planet sounds very unappealing. Matt Damon was desperate to leave. If we decide to do something about climate change, rather than leg it to Mars, can our investing strategy help? That’s the idea behind green investing. Like ESG (Environmental, Social and Governance) it means thinking carefully about where you put your money. But green investing is more targeted than ESG as there’s really very little wriggle-room within the definition. The number of categorisations within ESG make it easier for companies to boast of having ESG credentials just by ticking a couple of boxes. For instance, a taxi company may meet environmental standards by using electric vehicles, but could, unknown to investors, fail on social measures by treating its employees badly. Now there’s a danger that green investing can fall foul of ‘greenwashing’ where business managers attempt to make their companies look environmentally friendly and climate conscious when they aren’t. But by doing some homework and carrying out due diligence, it’s possible to invest profitably and make a difference.
Far more specific
Green investing means actively identifying and investing in companies that put the environment and sustainability at the heart of everything they do. It’s more than taking affirmative action to limit their carbon footprint, good as that is. A green portfolio must exclude companies whose products are damaging the environment, as well as the ones uninterested in taking steps to improve the sustainability of their businesses. This isn’t always easy to do. For example, take an energy supplier that claims to only use sustainable sources such as solar, wind, tidal and geothermal. Is this always true, or is there some small print allowing the supplier to draw on other sources at peak times? Unfortunately, there are energy firms out there claiming to be completely green when, by strict definition they aren’t. There are other issues to consider. Your decision to invest could depend on whether you count nuclear fuel as a green energy source or not. There is currently a significant debate about this matter taking place right now, so you need to decide where you stand.
Check your sources
If you do the usual thing and search out green companies on Google, you’ll get some surprising results. According to a poll from Newsweek in 2017, green corporations include the industrial conglomerate Siemens AG, utilities provider Centrica PLC and Canadian oil & gas provider Enbridge Inc. No doubt these companies are taking big steps in doing the right thing, perhaps taking positive action to reduce their carbon footprint. If so, that must be applauded. But are they truly green? Other companies cited for having ‘great environmental initiatives’ include the Ford Motor Company, Disney, Hewlett Packard and Johnson & Johnson. There are plenty of ‘green’ investment opportunities out there, if you’re happy to go along with a general measure of what it is to be a green company. But what’s your definition? What makes you comfortable, and what makes you feel uneasy? You may have the time, energy, and clout to push such companies further so that they make even bigger moves towards sustainability. Or you may prefer to focus on those companies who genuinely have the environment and sustainability at the fundamental core of their business.
There’s a fundamental reason for taking a green approach to investing and that is to support those businesses actively involved in countering the effects of climate change, whether anthropomorphic or not. This can also mean diverting funds away from companies contributing to climate change. The big question is whether individuals can make a difference, or if ultimately it requires government intervention. Concerning the former, it has been argued that individuals won’t rid the world of high polluting companies by selling their shares in them. There’s always someone else who will happily buy them back. In the same way, you see large corporations divesting themselves of ‘troublesome’ assets. Mining giant BHP Billiton recently announced that it was looking to exit the petroleum business. But that doesn’t mean the company can take credit for reducing global fossil fuel production. After all, it’s likely that it will simply sell the business on to another producer. But there are suggestions that change may be coming in some areas. Last year Larry Fink, the Chairman of multinational investment giant BlackRock, wrote that, “The evidence on climate risk is compelling investors to reassess core assumptions about modern finance.” He went on to say that BlackRock is “literally talking about selling assets so we don’t get caught up in the damage when it hits.” That’s quite a statement of intent. Only time will tell if BlackRock follow through.
Most of us carry out our investment decisions at a smaller and more personal level. If you’re really interested in taking the green route, check out sites such as growensemble.com. Here you’ll find details of genuinely environmentally friendly and sustainable companies. There may not be too many investable names yet, but that’s likely to change over time as concerns over the way we live, and the damage we do to the planet, continue to grow. Even if investment opportunities are limited, you can still buy green products rather than unsustainable alternatives. It does feel as if these are early days, and it does take quite an effort to distinguish between those companies jumping on the green bandwagon from those that are genuinely making a difference. It isn’t easy being green, but this isn’t a fad, and it’s not going away. The shift is happening whether we like it or not and given the fragility of our planet that’s no bad thing.