Green investment is one of the financial tools under green finance. It consists of multiple aspects. Let us start from the perspective of public traded stocks. Imagine yourself as an investor. Your primary concern would probably be choosing to acquire stocks that bring you the most profit, right?
What if at this point someone tells you to concentrate your investment in companies who emphasizes the economy, the environment, and society in its decision-making process and those that actively manage sustainability (or green) indices are truly good enterprises that create value for the shareholders in the long run. You will probably be interested to learn that investing in such companies will help you make more money.
When you invest in green companies like this, we call it green investment. The target of green investment includes:
- Stocks and bonds of companies who emphasize the environment and sustainable (or green) development
- Stocks and shares of companies in the field of renewable energy or new energy
- Green basic infrastructure such as transportation or water resources
- Green real estate
- Investment in sustainable farm/forestry farm/ranch/aquaculture farm
What we have mentioned above is no joke. In fact, scholars have conducted analysis of stock components under globally-recognized corporate social responsibility criteria FTSE4Good and DJSI (Dow Jones Sustainability Indexes) and discovered that compared to the enterprises ranked at the bottom half of the list, the ROI of top-ranking companies is 6-percent higher than their counterparts showing weaker portfolio performances. This is called eco-efficiency premium.
If one compares the green industry with their standard counterparts under the S&P 500, one can find evidence that green companies with high eco-efficiency demonstrates higher long-term ROI and lower volatility than those showing regular performances in portfolios.