The recent Hurricane Ida, the California wildfires and flooding across Europe have focused the minds that the primary reason behind such natural calamities is climate change. With respect to investments, the term ESG has been coined and become popular. It refers to environmental, social and governance. It is the buzzword. Many funds omit sin stocks in the gambling, porno, alcohol and tobacco industries.
However, the focus on avoid instead of advance has paved the path of an influx of tech funds equipped with a responsible investing alternative. Opportunities are enough to invest in such companies which take a proactive approach in various industries including healthcare, energy and agriculture. The question arises about whether the investment is made in green companies.
One major problem in ethical investing is the rapid evolution of the ESG term over the years. Earlier, the impact was based on faith group preferences equipped with exclusions of tobacco, alcohol and weapons.
The holdings of older ethical funds now do not match with what investors want as still these operate on an exclusionary basis and not on a proactive sustainable one. Lack of industry standard measurement tools is one of the primary reasons that make labeling of funds slightly difficult.
Former St. James's Place partner David MacDonald said there is no measurement tool on the ESG and he calls it to be the fifty shares of green question. He launched in 2019 Path Financial, which is an ethical financial planner.
According to Clim8 investment app founder Duncan Grierson, many funds have been badged as ESG and these are simply investing in Facebook and Microsoft. Investors need to draw their own boundaries with respect to ethics.
Royal London Sustainable Leaders states that it does not simply focus on the environmental credentials, but simultaneously looks into the social aspects.
The US Vegan Climate ETF focuses little on farming or food. Its top holdings include PayPal, Alphabet, Nvidia, Tesla and Microsoft.
Meanwhile, Jupiter Green and Impax Environmental Markets have beenÂ established as popular picks for eco-conscious investors. These basically focus on energy efficiency, pollution control, water treatment, waste technology, sustainable food and natural resource management.
Jupiter Green invests in companies that look into solving environmental problems. It backs Renewcell, Hoffman Cement and other such companies that recycle used textiles and produces low carbon cement.
It is important that investors look into such funds which publish their policies in a transparent way instead of taking the help of just the marketing materials equipped with warm words. It is equally important to look into the evidence against claims made.