What is a Green Fund?
A green fund is an investment trust or other means of investment that invests only in companies that are considered socially conscious or that directly promote environmental responsibility. Green funds are offered in the form of intensive investment tools for companies engaged in businesses that support the environment, such as alternative energy, green transport, water and waste management, and sustainable living.
- Green funds are mutual funds or other types of investment instruments that promote social and environmentally friendly policies and business practices.
- Green funds have the potential to invest in companies engaged in green transport, alternative energy and sustainable living.
- After environmental disasters such as the Exxon Valdez oil spill have attracted worldwide attention, green investment began in earnest in the 1990s.
- In 2020, $ 50 billion was invested in the Green Fund, more than double the inflow of the previous year.
- There is some evidence that green funds can match the interests of traditional funds, but that is not definitive.
Understand the green fund
Green funds are investment funds whose portfolios are primarily based on environmental, social and governance (ESG) standards. Green fund investment strategies can be based on some of the following characteristics:
- Avoid negative company standards (companies that rely on fossil fuels, logging, overfishing, or other misuse of natural resources).
- Selection of positive corporate standards (environmental programs, energy conservation, fair trade, etc.)
- A combination of both strategies.
Based on performance, it is not yet clear whether Green Funds and Socially Responsible Investment (SRI) can consistently generate better returns for investors, but many investors consider it valuable. It represents a positive step towards environmental awareness.
History of green funds
There is also a view that green investment began in earnest in the 1990s. This was a time when investors were more serious about the harm to their business and the environmental pressures of the industry as a whole. In the wake of headline events such as the Exxon Valdez oil spill and the protracted battle for logging rights in the northwestern Pacific, a series of investors are paying attention to businesses that are good at managing their environmental impact. And began to concentrate resources. Traditional company.
For some investors, not only did these businesses operate in a more ethical way, but they also had a competitive advantage over companies that were not equipped to reduce their environmental impact. Others have seen the ethical obligation to invest in technologies and businesses that can contribute to building a sustainable society through renewable energy sources.
Following the 1989 Exxon Valdez oil spill, Congress passed the 1990 Oil Spill Act (OPA). This strengthened the Environmental Protection Agency’s (EPA) authority to prevent future oil spills and punish polluters.
Types of green funds
The Green Fund invests in several areas, including renewable energy, buildings and the efficiency sector. The renewable energy sector covers a wide range of fields, including solar energy, wind power, batteries, energy storage technologies, and materials that help enable those technologies.
The building sector includes builders who use energy-efficient materials to reduce carbon dioxide emissions in each building, whether for commercial, residential, or office use.
Socially responsible investment continues to grow in popularity, primarily due to increased global exposure to climate change issues and increased federal funding for alternative energy and other programs. Since 2009, the Green Transition Scoreboard, a project run by Ethical Markets Media, has tracked a cumulative $ 10.39 trillion invested in the green economy by the end of 2019.
Available Green Mutual Funds include TIAA-CREF Social Choice Equity Fund (TICRX), Trillium ESG Global Equity Fund (PORTX), and Green Century Balance Fund (GCBLX).
$ 10.39 trillion
Total investment in the green economy from 2009 to 2019.
Green fund performance
Funds are being poured into green funds as investors seek both socially responsible investment and the benefits of rising green technologies such as wind and solar. According to the Forum for Sustainable and Responsible Investment, in 2020 assets managed by registered investment companies with ESG standards, such as investment trusts and index funds, were $ 3.1 trillion.
Despite the sometimes high fees, the fund also has a relatively solid performance. According to Morningstar, sustainable funds in 2019 outperformed traditional funds, with 66% ending in the top half of the category and 35% ending in the top quartile. Sustainable funds’ returns of only 14% ended in the lower quartile. In 2019, the number of sustainable funds increased to 303 open-ended and exchange-traded funds (ETFs).
Is the Green Fund Profitable?
While profits are not the only goal of green investment, some studies have shown that ESG-based funds have more traditional fund returns and competitiveness. According to Morningstar’s analysis of 4,900 funds over a 10-year period, 58.8% of sustainable funds “exceed the average surviving traditional peers.” In the same analysis, sustainable funds yielded an average annual return of 6.9% compared to 6.3% from more traditional funds.
How much money is invested in the green fund?
Estimates of the value of the entire portfolio of green funds vary widely due to the subjective meaning of the terms. According to the Forum for Sustainable and Responsible Investment, in 2020 assets managed by registered investment companies with ESG standards, such as investment trusts and index funds, were $ 3.1 trillion. Such funds received a record $ 51 billion inflow in 2020. This is more than double the previous year’s record.
What does the Green Fund invest in?
Broadly speaking, green funds aim to invest in businesses that have a positive impact on the environment, but there are several strategies to do so. Some green funds are just trying to create a portfolio of companies that do not rely on fossil fuels, logging, or other unsustainable business activities. Others are willing to support companies engaged in new energy research, sustainable materials, or other technologies that benefit the environment.