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Investing in the Green Economy – Bankable or an Illusion?

An image of a hand surrounded by ESG icons to illustrate investing in the green economy

For the past decade, due to increased awareness of climate change, going green has been a huge trend worldwide, and investing in the green economy is becoming increasingly popular.

Coupled with the ‘woke’ culture where young investors are increasingly becoming more conscious about the ethical impact of their money on the world, many investors are jumping onto ESG investing, which are investment strategies that consider Environmental, Social, and Governance (ESG) factors.

In 2021, the Monetary Authority of Singapore (MAS) said they were going to pump in US$1.8 billion into climate-related investment opportunities, as the financial sector can play a significant role in tackling climate change issues. In fact, MAS is taking a leading role to catalyse sustainable and green finance in the region.

According to the Financial Times Stock Exchange (FTSE) Russell, which tracks the exposure of 3,000 listed companies worldwide to the green economy using their FTSE Russell Green Revenues 2.0 Data Model, the green economy is generally broken down into 10 sectors, including these main 7:

  • Energy generation
  • Energy efficiency
  • Environmental resources
  • Sustainable food and agriculture
  • Clean transport
  • Waste and pollution control
  • Water infrastructure

You can now also actively choose ESG investing on some robo-advisors and other investment platforms.

On the flip side, some people are skeptical about green investments as they are unsure if such investments can really have a positive impact on the environment, or if the returns would be lower than other types of investment.

Read on as we discuss the issues relating to the green economy.

Will your returns of investment be less than non-green investments?

An Imperial College London research in 2021 found that renewable power portfolios have outperformed fossil fuel portfolios by three times and key findings show that for the past 10 years, total returns of renewable power portfolios were more than seven times the returns of fossil fuel portfolios.

RBC Global Asset Management, a Canada-based investment manager, also found a positive relationship between companies that had good environmental performance and their stock price performance in 2019.

Companies with high ESG ratings were found to outperform the market in the medium term of three to five years, and the long term of between five and 10 years.

These studies show that generally, investing in the green economy can potentially be more profitable than non-green investments.

But will ESG investing really help the environment?

In 2021, Tariq Fancy, the former sustainable-investing chief at BlackRock (an investment management company), told the Wall Street Journal (WSJ) that the so-called sustainable investment sector benefits the finance industry more than it does for the environment, as it is seen as a lucrative way to raise funds.

He argued that so far, there is no compelling empirical evidence that ESG investing has a real positive impact on climate change.

Although he admitted that there may be a few companies that can create a positive impact on the environment and earn good profits at the same time, he lamented that overall, the ESG industry today still mainly benefits investors financially and lacks a greater impact on the environment.

However, in the same interview, Alex Edmans, a Professor of Finance at London Business School told WSJ that government intervention (such as through regulation and tax incentives) in this sector is crucial to ensure a win-win situation for both investors and the planet.

So if the reason why you are considering investing in ESG is that you want to create a positive impact on the environment as well as earn profits at the same time, you might want to scrutinise the environmental impact the companies have made, as well as how they are actually measuring this impact.

It is also important to consider the local government’s level of intervention and support in this sector as well.

People love to be seen going green

Nowadays, going green has been crowned with a halo – people tend to respect organisations or people who claim to be green. Everyone wants to be seen as part of doing something good for the planet.

City Square Mall along Kitchener Road gained widespread publicity – and consumer foot traffic – by touting its green credentials. That approach has since been adopted by other malls and businesses that want a piece of the green pie as well, such as Star Vista, Westgate, [email protected], and so on.

However, if we scrutinise the ‘greener’ money lender more closely, we will realise that it is almost impossible to be 100% carbon neutral even if they might opt for a green electricity plan in their office, reduce paper printouts, and use only recycled paper.

We can only do our best, but how much is enough? And how much can we measure the impact of really going green?

Hence, if you want to invest in the green sector, you might want to ask yourself, what impact are you looking for? Or are you just excited to jump onto the bandwagon because it’s a new trend where you can see a positive future?

Is it worth taking a loan to invest in the green economy?

Every investment comes with risks and even if the green economy appears to be an exciting sector to invest in, do proceed with caution just like all other investments. Remember to do your due diligence to research and only invest money that you can afford to lose.

If you are planning to start a green business as an investment and are looking for capital injection, you can consider taking a business loan that can help you with your business growth.

If you are planning to take a personal loan to invest, do remember to manage your income and finances and practise healthy financial habits to ensure that you can repay your loan on time regardless of how your investments perform.

And of course, if you want to take a loan with a licensed money lender, you need to find the best. As the highest-reviewed licensed money lender in Chinatown, Soon Seng Credit is one of your best options if you are planning to approach a money lender in the area.

Apply for a loan instantly.

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