As the profile of green investments continues to rise it is becoming apparent that there is still some misconception that their performance may not be as good as more traditional financial instruments. This is certainly not the case!
In a recent article titled The Biggest Myth of Sustainable Investing, Janet Brown, President and CEO of FundX Investment Group, points out that as far back as 2012 RBC Asset Management undertook an in-depth review of four bodies of research that investigated the performance of sustainable investing. The conclusion? Sustainable and socially responsible investing had no negative impact on average returns.
This was backed up by a 2015 review of more than 2,000 academic studies dating back as far as the 1970s, which looked not only at environmental factors but also social and governance (ESG) matters. The study showed that each of these sectors might have cost money in the short term, but the overall impact on corporate finance was positive. It is reasonable to assume that what is good for corporations is good for investors.
Investors and brokers would want firmer evidence before making an investment decision. Here the market has the answer. In this case it is worth comparing the performance of a sustainable stock index — Janet Brown chose the MSCI KLD 400 Social index, which records how well stocks with high environmental, social and governance ratings do — with a more 'mainstream' index, in this case the S&P 500.
On doing so it becomes evident that not only has the former kept track with the latter, but it has in fact slightly outperformed it.
Companies involved in sustainable investing are very aware that innovation is vital to continued success, hence the massive increase in the green, environmentally friendly investment market.
The biggest mutual fund managers are very much aware of a swing in investor sentiment towards being more environmentally aware.
This is a trend that was spotted at an early stage by OPEN Cleantech, and one we have been at the forefront of. We offer environmentally responsible investors the option of investing in companies and projects that offer truly 'green' credentials. The OPEN Cleantech Equity Fund seeks out outstanding businesses bringing to market innovative products in which to take equity in return for a share of the substantial predicted growth.
The Climate Bond Initiative has predicted that the green bond market will be worth around US$130 billion annually by the end of this year, indicating the sector is now firmly in the mainstream. But this is set to be only the start — global climate leaders have pinpointed a sharp increase in green investments by 2020 to about US$1 trillion-worth as one of six urgent climate action milestones.
With growth like this over such a short timescale it can be said green, sustainable investments have come of age.