So, let's talk green: A green Christmas for those with green investments

This Christmasis not going to be a white Christmas for many. Yes, climate change has resulted in reduced snowfall is many parts of the world, and hence they may not enjoy a pretty white Christmas. But the reasons for a happy green Christmas is because of great returns some are enjoying with their green investments. 

I remember when I was building Our Native Village, my 100% eco resort in Bangalore in 2005, everyone told me that ‘green and sustainability concepts’ are foolish. In 2008 when oil hit $100 a barrel, I was suddenly declared a visionary! Most people still think that investing in green is foolish. This wrong view of green&sustainability investments needs to change, as the reality is far from the truth. 

The World Research Institute (WRI), recently released a report where they debunked some of the prevailing myths in sustainable investing. They interviewed 115 investment professionals – including asset owners with $1.26 trillion under management – and found thatenthusiasm for sustainable investing is surging. Already, more than $8.7 trillion of investment capital is managed using environmental, social and governance (ESG) factors in U.S. markets alone, a 184% increase since 2010. This reflects investments in green infrastructure, renewable energy, affordable housing and more, as well as investments that more integrate the broader ESG factors.

Morgan Stanley, in a report titled ‘Sustainability Reality’ says that investing in sustainability has usually met, and often exceeded, the performance of comparable traditional investments. This is on both an absolute and a risk-adjusted basis, across asset classes and over time, based on their review of US-based Mutual Funds and Separately Managed Accounts (SMAs). The report studied more than 10,000 mutual funds found that sustainable equity funds usually had equal or higher median returns and equal or lower volatility than traditional funds.Investing in these solutions can be riskier over the short-term, but these managers have conviction they will achieve outsized returns over the long-term by bringing some of the early capital into companies creating the transition to a sustainable economy.

While all these respected entities have endorsed the idea of and shown the reality of green and sustainable investments, there is still a lot of doubt, confusion and scepticism among investors. I believe that this is because of ignorance of the facts. It is also comfortable and safe for investment managers to look at business as usual and follow the same kinds of ‘proven’ investment strategies. This has to change. 

Some of the scepticism is however based on the 2010-2011 clean tech bust when the likes of Sun Edisson went bankrupt. While this is grounded in reality, there is a difference in the fundamentals that govern the markets between then and now. The clean energy market as a whole is experiencing a surge. Installed capacity of wind and solar have grown annually by close to 40-50% over the last decade. Prices of storage in general and lithium batteries have dropped dramatically. For the first time, we have businesses committing to low carbon emissions, with more than 640 companies and investors committing to climate action through the ‘We Mean Business’ coalition.

We are entering an unprecedented era in the world. Changes that we thought will never happen are becoming a reality. The investment ecosystem is also changing rapidly and will require nimble footed investment advisers to adapt fast. The smart and wise investors will see the trend and reap the benefits of a transforming world economy. The not so smart ones, stuck in the legacy of the past will lose out. 

Which one do you want to be? Merry Christmas!