Money: Green Investments

Intro——–Carbon Offsets——–Green Investments——–Challenges——–Solutions

Green investments are investments that help promote eco-friendly companies. Whether that’s achieved by investing more heavily in low-impact companies [weighting] or refusing to invest in high-impact companies completely [negative screening] – the goal is the same. And while negative screening is usually more effective than weighting to reduce impacts, both methods can be used simultaneously and can help investors play with their money more responsibly.

Green investing is becoming increasingly popular nowadays, especially for long-term investments. That makes sense; it’s a relatively easy way to make a significant difference. And with large companies switching to more sustainable practices, it’s becoming less risky and more profitable than it was decades ago.

With more and more investors taking an interest in sustainability, it’s only a matter of time before extremely polluting investments are dropped – when looking at long-term options at least. Betting on unsustainable companies just doesn’t make sense when shaping a sustainable future.

Challenges

There’s a reason it’s pretty easy to make a big difference by moving money around. Individuals can simply shake up their investment portfolios by themselves in a few clicks, or by calling their bank. That’s convenient, but there’s still a fundamental problem. How are individuals/banks supposed to know which companies are sustainable?

As we’ve seen in quite a few sections, transitioning to more sustainable societies is complicated and has a lot of moving parts. As such, it would clearly be unreasonable of us to expect that bankers and individual investors are sustainability experts – or even know how to research a product’s life-cycle impacts.

Fortunately, some companies have developed ‘sustainability metrics’ that can help banks and individuals evaluate the impacts of numerous companies. Unfortunately, these metrics often don’t consider life-cycle impacts, so it’s hard to know for sure if a company is eco-friendly [we’ll see in a later section why assessing companies can be challenging].

That being said, these metrics can still help us identify some of the most polluting companies in our portfolios – so there’s no excuse to keep investing in them.

A Few Notes

With more and more companies intent on reducing their impacts on the environment, separating companies that offer truly sustainable products from the rest will become increasingly challenging. And that’s not an investor’s fault. Green investing is a mash-up of 2 very complicated fields that require many experts and typically don’t work well together.

It’s also important to note that green investing doesn’t necessarily mean higher returns on investments. Even though sustainable products should be the way of the future, wishful thinking doesn’t guarantee good investments. After all, they remain investments.

Conclusion

There’s no question that green investing will be extremely important as we move forward. For now, we can rely on removing the most polluting companies from our investment portfolios to stop supporting them with our investments. This relates to the expression: “If you’re not investing responsibly, you’re investing irresponsibly”. However, to take that a step further and truly promote sustainable companies while avoiding wasting time/money on other companies – sustainability metrics are going to have to improve considerably to allow green investors to make informed decisions.