ESG or green investing is on the rise, but experts recommend against a single-theme approach

green investingMany investors are not just looking at profitable companies to invest in but those that are doing something to save the planet. Socially responsible investing is on the rise and businesses should look into eco-friendly operations if they want to attract more investors.

According to investment strategist with BMO Global Asset Management, Mike Dowdall, “People want to align their investment portfolios with their personal beliefs. It’s about people feeling comfortable with what they are investing in. And more companies are thinking about societal benefits.”

Tesla (TSLA), Elon Musk’s company, is the best example and stands to gain plenty from a shift towards consumer behavior that is more environmentally friendly. The company not only produces electric cars but also SolarCity, a sustainable energy provider.

Several exchange-traded funds are also focusing on companies that are “green”. These include ALPS Clean Energy ETF (ACES), Invesco Solar ETF (TAN), iShares Global Clean Energy ETF (ICLN), and VanEck Vectors Global Alternative Energy ETF (GEX).

Some of them own Tesla, LED light bulb manufacturer Cree (CREE), First Solar (FSLR), wind turbine maker Vestas (VWDRY), and other companies that are considered “good” for the environment.

Experts still recommend that investors stay vigilant with their choice of investor. They still need to make sure a company has solid fundamentals before they buy stocks.

Investors must check if sales and earnings are moving on an upward trend. They should also look into the cash reserve and debts if there are any. Investing blindly and with just their conscience as basis could backfire.

Some companies that scored well on various environmental, social, and governance (ESG) metrics have stocks that outperform the market. And these entities make the best investment.

Still, it’s best for investors not to go overboard with their investments on socially responsible companies. Like any form of investing, it is best to spread the risks than put all their money on companies with ESG portfolios.

The alternative energy market, for example, had experienced blowups, with some high-profile companies gone bankrupt.

Solar developer SunEdison was one of U.S’ fastest-growing renewable energy company since 2003 until it filed for Chapter 11 bankruptcy protection on 2016. Its 2014 revenue was S$2.484 billion and its operating income was US$536 million.

According to senior vice president and renewable energy research firm GTM Research, Shayle Kann, “SunEdison had a balance sheet that is way out of line with any other solar company. The projects themselves are good. They just bought too much too quickly.”

Solyndra, another solar company, suffered the same fate as SunEdison. Proof that the market for alternative energy offers no guarantees.

Head of investment themes for the Americas at UBS Wealth Management, Laura Kane, advise against single-theme approaches even if thematic investing can help an investor identify and express a personal area of interest when building their portfolio.

Thematic investment associate Michelle Laliberte agrees with Kane and both added that “A diversified basket of themes will likely reduce volatility.”

This 2019, many alternative energy ETFs performed well than the broader market. But their performance in the S&P 500 for the last five years was underwhelming. Long-term success on purely carbon neutral investment strategy is not a guarantee.

Understanding ESG investing

The growth in this type investment is due the growing number of investors who are not only interested with an investment’s financial outcomes but also its impact on the environment. Millennials are considered the biggest supporter of ESG investing.

The Cone Millennial Cause Study that was conducted in 2016 revealed that this particular demographic is more likely to trust or purchase products from an organization that is environmentally or socially responsible.

Sustainability is split into two categories in the S&P Dow Jones Index–ESG and green or low carbon. The former takes into consideration more factors, while the latter is more focused.

ESG considers both environmental and social factors when evaluating a company’s portfolio and how supportive it is of the environment.

Do you want to invest in “green” companies?

Before you do, take note of the advice previously mentioned and research. Don’t bet your money on the first investment that sounds good. Just like when you want to win big when sports betting or playing casino games online, do your homework and identify the best place to place a wager.

The goal should always be to earn, and this is possible if you choose wisely where to bet. Check regularly Online Casino review sites to get the low down on the latest and best operators to place your bets.

In the same way, be smart in choosing a socially responsible company to invest in.


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