Climate change and closely related issues such as growing water scarcity, diminishing natural resources and commodities have compelled governments and businesses to reevaluate present methods of production and consumption. It is clear that a massive change in behaviour is inevitable in which new technologies will play a key role.
Companies developing clean technologies (“clean tech”), such as renewable energy technology, energy efficiency, water technology, and carbon reduction technology players will undoubtedly be playing a major role as part of this solution and investors are increasingly looking towards them as part of their long-term growth strategies.
Cesar de Brito, senior portfolio manager for the Clean Technology Fund at Lombard Odier Darier Hentsch outlines the following reasons why the sector should make money – growing political support and state incentivization, environmental legislation and regulations inhibiting polluting technologies, long-term economic trends, an expanding range of emerging opportunities with more and more clean tech companies and investment funds being created, demands of socially responsible investors, diminishing natural resources forcing companies to adopt new strategies that favour the clean tech sector and wide sector diversification.
Green Funds have criticised them for mediocre performance and high-expense ratios. Steven Goldberg explains that socially conscious funds, by definition, restrict the stocks in which they invest. They tend to exclude companies involved with alcohol, tobacco and weapons companies — as well as those that pollute.
The average socially conscious stock fund charges 0.16 percentage point per year more than the average stock fund. One reason for this is that green funds are small, and fixed costs tend to represent a higher percentage of small funds.
The fund-manager is critical to the performance of the fund. Green Fund managers more often than not are more devoted to their ideals than to making money for their shareholders.
A socially responsible investor may have tolerance for lower returns than those offered by conventional funds, but by no means will he be willing to suffer loses. In investing in Green Funds, the investor should keep in mind that these are long- term investments. Clean-tech development is still in its early –to mid stages, so an investor should involve himself with this type of investment if he can set money aside for a few years without needing access to it.
Most of the companies that offer these funds tend to be rather volatile. While it can hit spectacular highs, so can it sink to unfortunate lows. Such funds are not for the risk-averse.
Eco friendly companies are usually small and relatively unknown necessitating research by the investor. Individuals should always be cautious when investing in companies that offer green funds. Eco friendly label is often used by companies to gain attention while in reality that company may be indifferent or actually harming the environment.
In the final analysis, green mutual funds are a good investment both financially and for our planet. With the recent push by the new administration for greener technologies, there is no doubt that green funds have a bright future and are definitely something that should be included in the investor’s portfolio.
