There is an increasingly strong societal focus on the issue of climate change and the steps we can take to address the problem. Such a significant challenge requires a multi-faceted approach, with changes made on a number of levels. The UK government has a 10-point plan for a green industrial revolution, while major industries such as construction and automotive are introducing new standards and regulations that will help to make a difference.
For any real progress to make, financial backing is required – and that comes in the form of green investment. You may be more familiar with trading forex, commodities, stocks, or indices, but what exactly does green investment entail? What are the pros and cons? And are we doing enough of it? Read on to find out more.
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What is a green investment?
Green investment refers to the support of businesses and operations whose aim is to improve our environment, or at least minimize or offset our impact on it. You may see the term used interchangeably with environmental, social, and governance (ESG) investing or socially responsible investing (SRI).
What are some examples of green investment?
One example of green investing is where a fund focuses specifically on a certain sector, such as renewable energy. The fund commits financial resources to companies that are responsible for creating wind farms or producing solar panels. With this added investment, these businesses can continue to grow and develop, thus improving the availability and capability of sustainable sources of energy.
What are the advantages?
The primary benefit of green investment is that it contributes to a brighter future for our planet. Financial backing enables progress to be made at a faster rate, which means we can do more to address the issue of climate change.
There can be advantages for the investors, too. Lending their support to green initiatives means they will be seen more favorably in the public eye, while there may also be tax breaks that act as a financial incentive.
What are the disadvantages?
There are also risks from the investors’ point of view, however. Companies in this space may still be in their formative phase, so initial returns may not be quite as high as in some other markets. On the opposite side, companies may feel they are at risk of relinquishing some control. Their investors may push for greater profits, forcing the business to compromise on what it feels would be in its best interests in terms of steady development.
Are the changes happening fast enough?
Green investment has been described as a “dangerous placebo” by some experts and there’s no doubt that it’s still in its very early days. It remains to be seen whether it will actually bring about recognizable change, or if it’s little more than a false dawn.