What does investing into Green Funds Mean?
Green funds (also called ESG Funds) concentrate on investing in companies which are deemed to be socially conscious in their day-to-day business dealings.
They concentrate on investing in companies which promote positive environmental policies, this can include alternative and renewable energy, Vegan foods green transport, waste management, water, and sustainable living solutions.
The main purpose of this style of investment is to ensure that your money is only used to support ethical enterprises.
How did Green Investing start?
Believe it or not, investing in green and ethical funds has not always been a thing. The concept is believed to have started in the early 1990’s, this being spurred on by the Exxon Valdez oil spill. This, and the logging rights in the Pacific North West regions, really opened people’s eyes to how certain companies and industries could have huge negative impacts on our planet, and that a business could have a far greater environmental impact than any consumer. Since then, green investing has grown in popularity, and therefore the cost of investing such “green” strategies has decreased.
How do Green Funds perform compared to others?
Large amounts of money have been injected into green funds over the years, and this is increasing year on year, especially following the global pandemic. The primary driver to this is investment companies and individuals seeking out ethical, green, and socially responsible investments.
As an example, due to higher demand for wind farms and solar power, the assets undermanagement for green funds in the US hit over $17 trillion in the first quarter of 2020. This equates to a 42% increase since 2018. It is important to note that past performance is not a guide to future performance, however, according to Morningstar, figures suggest green funds outperformed “normal funds” in 2019 where approximately 66% of green funds finishing in the top 50% of their investment category. It was also reported that only 14% of green funds finished in the bottom quartile.
It is now possible to invest your Pension, ISA, or other investments in Green and Ethical Funds. Pensions tend to be long term investments, which means that if you invest your pension over, for example 40 years, you could potentially have a positive impact on the environment whist also saving for your retirement. Furthermore, the more people investment in green companies, the more it pushes other companies to consider their position in respect of their impact on the environment, and how they can adapt their policies and practices in order to keep up with this well needed change.