The already palpable climate crisis has consolidated the importance of sustainable businesses. Friedman’s Doctrine that states that the sole purpose of a firm is to raise the profit for its shareholders, is very arguably nowadays. Today, the new demand for “green-businesses” is shaping a different management approach, in which the environmental and social aspects of a firm are meticulously cared for. Consequently, investors can also choose to support companies that don’t harm the nature and the people, or, at least, try to minimize their bad consequences on nature and society.
This article is about socially responsible investing (SRI): what are considered green investments, which are the companies who score best at social and environmental criteria and are currently in trend (if you aim to become a “green investor”), and how to adopt an eco-friendly approach to your portfolio.
In recent years, sustainable investing in Europe has been steadily increasing and reached over 12,3 trillion euros in 2018, with 46 percent of the 30,7 trillion U.S. dollar SRI market.
Sustainable and responsible investment refers to an investment approach that harmonizes environmental, social and governance factors in the research analysis and selection process of portfolio management. Green investments are investment activities whose focal point is the environmental commitment, such as conservation of natural resources, production, and promotion of alternative sources of energy, implementation of clean air and water projects, etc. In recent years, sustainable investing in Europe has been steadily increasing and reached over 12,3 trillion euros in 2018, with 46 percent of the 30,7 trillion U.S. dollar SRI market. This development is displayed in the graph below.
As for the countries who showed a greater interest in sustainability-themed investments, Italy ranks the first country, with investments of 52,861 million euros, followed by two of its geographical neighbors: France and Switzerland. The Netherlands ranks eighth in the list, with investments of 7,125 million euros.
So, what are the current trends of green investments? Simply, yet extremely important: water, wind and solar are the top challenges.
Firstly, water stock. The numbers showing the decrease in water sources are alarming, as the global population continues to grow. The availability of water is not taken for granted for future generations. As The European Environment Agency notes, “Some 20 European countries depend on other countries for more than 10% of their water resources,” and five (the Netherlands, Hungary, Moldova, Romania, and Luxembourg) rely on rivers that flow in from other countries to provide more than 75% of their water. In other words, these issues have opened a clear opportunity to invest in companies that collect, clean and distribute water. Some valid examples: American Water Works (AWK), ITT Industries, Calvert Global Water Fund (CFWAX), AllianzGI Global Water Fund (AWTAX).
Secondly, wind power. According to IRREA, the wind is the next most common source of renewable energy. Even though today few countries rely on renewable energy, many are interested in the possibility. Of course, Denmark is leading the way, but Portugal, Ireland and the U.S. are following.
Some 20 European countries depend on other countries for more than 10% of their water resources,” and five (the Netherlands, Hungary, Moldova, Romania, and Luxembourg) rely on rivers that flow in from other countries to provide more than 75% of their water.
Some examples of companies that work for wind energy that you might be interested in: General Electric, NextEra Energy Partners LP, Siemens Gamesa, Vestas Wind Systems.
Last, but not least, the sun. The global solar energy market is expected to reach 422 billion U.S. dollars in 2022, in comparison to 86 billion U.S. dollars in 2015. Solar energy, being one of the most popular renewable energy sources, is definitely attractive to investors interested in green sources of profit. Leading producers of solar panels include First Solar (FSLR), JinkoSolar Holding Co. Ltd. (JKS) and Sunpower Corp (SPWR).
Some other popular green investing opportunities are pollution control technologies aimed to reduce greenhouse gas emissions and harmful chemicals; green transportation, such as developing a fuel-cell technology to develop an alternative method of powering automobiles; waste reduction; organic farms that engage in animal management practices and avoid the use of hormones and antibiotics; aquaculture, meaning sustainable fishing, etc.
In the previous Risk Magazine Article “The 2010s- a decade divided”, you can read more on the big shift in investing that climate change and environmental protection produced.
To conclude, there are plenty of opportunities for environmentally-friendly investors. The challenge of green investment resides in the fact that the objective is to increase personal wealth together with helping to create a better world. The bottom line, this brave task needs plenty of individual research to track the best opportunities to increase both the payoff for yourself and nature.